Options trading are like taking a long view of the market instead of depending on short term movements and it is definitely growing big especially the Indian options market. As an options trader, you have the advantage of placing wagers on specific market outcomes that are based on your study and experience. In options trading, everything is predetermined and your losses are frozen as you cannot lose more than a fixed amount.
You can learn options trading from online tutorials and learn the ropes initially from friends or fellow traders who have made it big in the stock market.
Better suited for the experienced trader
Traders can benefit from a great amount of leverage not allowed in other forms of trading systems and transactions. But at the initial stages, it is advisable not to venture into options trading as you need to gain some experience in speculative market trading before you can venture in. The usual procedure is to bet at two possible prices the stock is expected to reach in 6 months time and in the event of the price settling between the two, you will lose only a fixed amount.
Option trading can firewall against huge losses that can wash away your investments in a flash. The method is known as the Long Straddle and traders can benefit from a huge amount of leverage. Normally in the US it is common for option contracts to have 100 shares embedded in them while in other countries it can be even more.
In places like India, Australia, USA, etc the option contracts can be 1000 times more than the stock and it enables traders to control large stock positions by investing a small amount of money.
Before you get into options trading, you should check with your broker and find out the leverages and the terms and conditions offered. For the first timer in stock trading, seasoned traders do not recommend options as it is loaded with a huge amount of risk. Large money can come in at the shortest possible time, but you also run the risk of losing huge amounts.
To get a hang of options trading, your best bet would be to take a short tutorial on the internet.
Option pricing spreadsheets
Investment professionals have fine tuned option strategies over the years and they have come out with some real good tips. There are option pricing spreadsheets that you can easily download for free and you can practice them at a demo account if your broker has one.
You can also practice the moves at the tutorials to hone your skills. As an options trader you can place your bets on specific market outcomes unlike other traders who are dependent on the movement of the market.
At the tutorials, the trades are hypothetical, but they can arm you with the necessary knowledge and expertise required for real time trading. There are investors and experienced traders who have developed their own models for options trading. There is the European Black and Scholes pricing models for options trading to enable you to calculate better.
Unless you understand the option strategies, you will be totally at sea as the market is volatile and losses are common.
Most traders undergo losses as they do not have a strong grounding in the fundamentals. You must know how to use the test and risk rewards of all the different types of strategies.
Stock trading is fast catching on after the meltdown as many traders have fine tuned and adjusted their strategies to suit the changing scenario. Investing in stocks can be more rewarding if you learn options trading from hands-on tutorials that offer step by step guidelines.