Option Trading Much More Profitable Than Stock Market Trading

The common belief among professionals was that stock market trading was the only way to generate significant profits. That is indeed the case when the market is increasing, but what about those times it is headed the other direction? Unfortunately, the decline tends to occur much more rapidly than its counterpart.

For these reasons, if you use an effective option trading strategy, you will be able to make a profit no matter what is happening in the market as a whole. An option gives you the right to purchase or to sell shares of an underlying stock at a given price at a given time, but doesn’t require you to do so.

This process is not the same as stock market trading. When you deal in options, it is possible to generate profits in either a “bull” or “bear” market. This is accomplished via tools known as “calls” and “puts”. “Calls” are purchased when your research indicates good things about one stock, sector or region. In other words, this is an alternative to buying the stock outright. “Puts” are purchased in the opposite situation.

While all investors can benefit from an option tutorial, it helps to know that each call has a strike price, which is essentially the price that you will either buy or sell the underlying stock for. Each option also has an expiration date, which is to say that options are wasting assets with strict time limits.

A “call” is a stock purchase option which is sometimes helpful. It gives a buyer the right to purchase a stock at a determined price in the future. The buyer pays a premium ( from one cent to hundred of dollars) for this option.

For example, if you purchase the Stock XYZ January $10 Calls, you are wagering that on or before the expiration date in January (the third Friday of each month), shares of XYZ will be higher than $10, which means that your call option allows you to buy those shares at a reduced rate.

When you buy a put, on the other hand, you are paying a premium for the right to sell a stock at the strike price no matter where it may trade in the future. For example, if you buy a January $10 put for XYZ, you are effectively betting that XYZ will be trading below $10 per share on the January expiration date, allowing you to sell the stock at a locked-in profit.

While an option trading strategy requires a little know-how, it takes less capital to start than stock market trading and it allows you to profit in any market. And unlike buy-and-hold stock investors, you’ll actually come to welcome the volatility in the markets

The common belief among professionals was that stock market trading was the only way to generate significant profits. That is indeed the case when the market is increasing, but what about those times it is headed the other direction? Unfortunately, the decline tends to occur much more rapidly than its counterpart. That is why deploying an option trading strategy can provide a profit opportunity no matter which way the market is headed. Any investor can learn from an option tutorial. From this, one will learn first and foremost that options are wasting assets valuable only within strict time limits thus each option has an expiration date.

- David Baxwell