Stocks

7 Pages 1825 Words

You buy or trade stocks, bonds and mutual funds. Perhaps you invest in a 401(k) plan. Did you know you may be using a form of options as part of your everyday life? Do you pay a premium every quarter for house, auto, and medical insurance? You have purchased insurance as a safeguard against a fire in your home, a crash in your car, or large medical bills. Some investors use options on stocks or cash indexes to protect and insure the value of their portfolios.
A major advantage of options is their versatility. They can be as conservative or as speculative as your investing strategy dictates. Options enable you to tailor your position to your own set of circumstances. Consider the following benefits of options:

· You can protect stock holdings from a decline in market price
· You can increase income against current stock holding
· You can prepare to buy a stock at a lower price
· You can position yourself for a big market move even when you don' t know which way prices will move
· You can benefit from a stock price rise without incurring the cost of buying the stock outright
There are many strategy discussions for the new investor. The most basic are buying calls and buying puts. You can take a look at the prices which are known as the options premium. You have the bid and ask prices. You take that price and multiply it by $100 to get the total premium amount of the options. You can also see the amount of options that have traded throughout the day. Open Interest is also given and represents the total open contracts in a particular option series.
You may want to begin slowly with options and an effective way to do that is to create a simulated option position. This valuable educational tool gives you a detailed overview of options and charts many of the strategies that you may be interested in pursuing.
HOW OPTIONS WORK
Much like stocks, options can be used to take a position on the market in an effort to capita...