Learn How to Trade Options
The leverage and volatility of options trading can create dramatic results with small amounts of capital.
What is Options Trading?
Options trading is when an investor trades contracts, rather than shares of a company as with stock trading. These contracts let the buyer buy or sell stock at a later time. Options trading covers contracts like Stocks, Indices, Commodities & Currencies, all of which we’ll explain below.
Is Options Trading Different Than Stock Trading?
Options trading is different than trading stock; but developing a reliable strategy for options through education and the right guidance can allow beginner or intermediate traders to take advantage of this part of the market and expand their portfolio to hedge against risks. Though trading options can seem overwhelming to beginners due to some of the complexities involved in analyzing the market and making informed trading decisions, options are a versatile trading instrument and an important part of a trader’s capital-preservation toolkit. So, don't stay away from options just because they're difficult to understand at first. Instead, get the right education and learn about the various options trading strategies that are available.
Learn More About Options Trading
Options can be combined in multiple ways creating all sort of options strategies which can be very conservative, less moderate or something in between. Traders who believe the market is headed up can buy calls which allow them to buy a stock at a specific price, no matter how high the price may actually climb. Puts are for people who think the market is headed down; if they are correct, no matter how low a stock goes, they can sell it at the strike price according to the contract.
Options can also be used to offset potential losses. For example, traders who own a stock and think its value might go down, can offset some of its risk by selling a call option at today’s price. What they earn by writing the option partially offsets any potential loss on the trade if they are wrong. Additionally, if a trader wants to buy a stock but feel it is overvalued at today’s price, they can effectively lower the price by selling a put which commits them to buy if it reaches their desired price. They make money from the put, whether or not they end up owning the stock.
Because the value of options is tied to price movement over a given period of time, options are far more volatile than stocks and price changes are dramatic; a 100rs stock that goes to 110rs has seen a 10% increase, but this might translate to a 100% increase in an option that allows you to buy at 100rs anytime in the next six months. It’s not unreasonable that traders ask themselves, “Why should I spend 100rs to buy a stock when I can control it with a 5rs or 10rs option?”
Learn Options with Comprehensive Trading Courses
Learning options trading strategies at Sharekhan Education students discover how to buy puts and calls at the exact time that our supply and demand rules tell us they are cheap and about to become expensive. Option trading and writing options can also be used to: ensure your portfolio, manage risk, generate an income stream or lock in a profit in advance of the sale. Learn how to trade options with the best strategies through our detailed in-person or online options trading training.