Benefits of Stock Option Investing
The average investor trading in the stock market would ideally look to buy shares of potential worth so that he could sell them later at a higher price in the hope to turning it into a profit.
This strategy is very suitable for investors who are capable of holding onto stocks for long periods of time.
However, stock option investing is a better strategy for short and medium-term investors who can't afford to hold on to them for a longer period of time or wish to make a dynamic use of their investment.
What Are Stock Options? A Stock option is a contract that gives a buyer the right, but not the obligation, to buy a certain number of shares of that particular company for a fixed price and at a given expiration date.
Stock option investing is typically offered to employees of the company and those associated with the company.
The concept behind option investing is to provide a financial incentive to people who have made significant contributions towards the company's continuing success.
Benefits of Stock Option Investing There are 3 key factors in stock option investing that investors can benefit from when buying or selling stock market options:
Leverage is the difference between the cost price of the option (commonly known as exercise price) and the market price of the stock.
For example, if I'm an investor holding 100 shares of ABC Company with an exercise price of $1 each while the market price of the share is $1.
5, then my leverage is $50.
Investors can gain by using leverage though it works best for short and medium-term speculations.
Protection with Options: This is another useful feature of stock option investing.
Investors can buy certain options that come with added insurance.
If the stock market becomes uncertain, the investor can purchase protective options to hedge over a long period of time if he speculates that there will be a steep decline in the price of the stock.
Hedging on protective stocks can mean profit for the investor if the underlying price of the stock imminently falls.
Volatility Trading with Options: Volatility trading implies betting on whether there is movement or no movement in the price of the given stock, instead of betting on whether the price of the stock will rise or fall.
Basically, this is speculating regardless of the fact that there will be any activity in the price of the stock or not.
Investor will make a profit in this situation regardless of what happens to the price of the stock.
Volatility trading is a very beneficial method of stock option investing.
This strategy is very suitable for investors who are capable of holding onto stocks for long periods of time.
However, stock option investing is a better strategy for short and medium-term investors who can't afford to hold on to them for a longer period of time or wish to make a dynamic use of their investment.
What Are Stock Options? A Stock option is a contract that gives a buyer the right, but not the obligation, to buy a certain number of shares of that particular company for a fixed price and at a given expiration date.
Stock option investing is typically offered to employees of the company and those associated with the company.
The concept behind option investing is to provide a financial incentive to people who have made significant contributions towards the company's continuing success.
Benefits of Stock Option Investing There are 3 key factors in stock option investing that investors can benefit from when buying or selling stock market options:
- Leverage
- Protection
- Volatility Trading
Leverage is the difference between the cost price of the option (commonly known as exercise price) and the market price of the stock.
For example, if I'm an investor holding 100 shares of ABC Company with an exercise price of $1 each while the market price of the share is $1.
5, then my leverage is $50.
Investors can gain by using leverage though it works best for short and medium-term speculations.
Protection with Options: This is another useful feature of stock option investing.
Investors can buy certain options that come with added insurance.
If the stock market becomes uncertain, the investor can purchase protective options to hedge over a long period of time if he speculates that there will be a steep decline in the price of the stock.
Hedging on protective stocks can mean profit for the investor if the underlying price of the stock imminently falls.
Volatility Trading with Options: Volatility trading implies betting on whether there is movement or no movement in the price of the given stock, instead of betting on whether the price of the stock will rise or fall.
Basically, this is speculating regardless of the fact that there will be any activity in the price of the stock or not.
Investor will make a profit in this situation regardless of what happens to the price of the stock.
Volatility trading is a very beneficial method of stock option investing.