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Online Trading Tips

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by Walter Fox

No stock trading course could prepare the stock trader for the extremely volatile market we have experienced in the last year. Large stocks were pummeled by the erratic up and down motions of the market indices and the smaller, weaker stocks were demolished.

Fortunately, stock option strategies offer solace that even the best stock trading course can’t provide a” with options, you can profit when the market goes down. That’s right a” you no longer need to rely on the fickle market’s upward movement to bank big bucks.

Understanding the two most basic options strategies can help you make bigger returns for a lot less capital. First, there are call options, which are securities based on underlying stocks. Call options profit when stocks move up, so they’re pretty easy for most traders to understand.

At their core, call options are coupons that give you the right, but not the obligation, to buy a stock at a certain price for a limited amount of time. In this way, you can trade call options for their inherent value, or you can buy them as a way to purchase your favorite stocks at a relative discount.

Call options are sometimes called “surrogates” because you can make more money while investing less capital. The put option is often overlooked but it can increase in value when the price of the underlying stock decreases. You can trade the put options for their value as well or use them to sell the underlying stock at a fixed price within a specified time window. In other words, with a put option, you are able to sell a lower priced stock for a premium.

In addition, put options can act as a kind of insurance to protect any stock that you do have. Let’s say you have 100 shares of stock XYZ, which is trading at $10. If you purchase 1 put option contract at the $10 level, that means is if XYZ drops down to $5, your put options will afford you the opportunity to sell the stock for $10 a” even though it’s trading for half of that.

While the most basic tenet of a stock trading course will tell you to ‘buy low and sell high’, day-to-day stock trading has lost any sort of rhyme or reason and there are few, if any, fundamental reasons for the huge intraday swings we are seeing. The fortunate thing is that this kind of frenetic atmosphere is when stock option strategies profit most.

With even the most basic brokerage account, online option trading can generate a windfall of profits whether the market swings up, down or all around by allowing you to trade call and put options. What’s more is that options are available for all of the major indices and many exchange-traded funds, or ETFs, as well. This means you can play an entire sector or index for a lot less money. Don’t be limited by the strategies in your stock trading course a” expand your portfolio to options and expand your opportunities!

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