Stock Options Trading

Stock option trading is when a buyer enters into a contract to trade stocks of a company, hoping to make a profit as the company’s shares fluctuate. The option is bought at a set price and within a fixed time frame. A buyer is successful if his option expires in-the-money at this fixed time.

Step 1

In stock option trading, a buyer enters into a contract to purchase stock at a fixed price at a pre-determined time in the future. This time is known as the expiry time. The buyer has the right to buy the stock option at the set price, known as the strike price, but not the obligation the purchase it. The owner does not buy the stock itself, rather the option to buy it, hence the name stock options.

A stock option is part of a wider term called binary options. This means that when the contract is created, the potential outcome is already known and defined. The gain is set by the return rate and the loss is no greater than the amount invested by the buyer.

So, a benefit of stock option trading is that there are only two possible outcomes, both of which are fully realized: the option will either expire in-the-money and the buyer will receive a 65-71% return rate; or the option expires out-of-the-money and the buyer receives nothing. However, when trading with anyoption™, if an option expires out-of-the-money then a buyer receives 15% of his investment back.

Step 2

When trading stock options, the buyer must select his expiry time – this is the time when the contract will end. He may choose for this to expire at the end of the hour, day, week or month. He must also select which underlying asset he will purchase – in this case it is a stock, however options can also be bought in commodities, indices and currency pairs.

The buyer must also select which direction he thinks the stock will move in. This determines whether he purchases a Call option or a Put option. If he thinks the stock will be higher than the strike price at the expiry time, then he selects a Call option. If he thinks the stock will be lower than the strike price at the expiry time then he purchases a Put option.

For example, a buyer  may believe that the performance of Company X is improving and therefore decide to buy a stock option (a call option) in Company X, so that he can profit from the rising price of the company’s stocks. If the stocks of Company Y succeed in rising, then he will profit from entering the contract when the stock was at its earlier, lower price.

Step 3

So, how does one purchase a stock option?
The easiest and most comfortable way to trade stock options is using an online trading platform such as anyoption™. It is 100% web based, does not require software download, any other previous trading experience and it’s available for private and institutional investors worldwide. The anyoption™ platform is easy to use, the speed and accuracy of settlements is flawless and the most advanced and stable technologies are used to ensure the safety and satisfaction of traders.

Step 4

Using this online trading platform, enables anyone to start trading stock options immediately. Simply open an account, deposit money and follow the steps below:
1.Select the stock which you would like to purchase an option in e.g. Google, Microsoft, Apple
2.Choose the size of your investment. With anyoption™ this can be anything from $50 to $3,000 (or the equivalent in a different currency), though multiple trades can take place simultaneously.
3.Decide if you will purchase a call option or a put option. If you buy a call option then you predict that the stock will improve and increase in value. If you buy a put option then you predict that the stock will decrease in value.
4.Select your expiry time for the option - end of the hour, day, week or month

Step 5

All that is left to do is wait for the expiry level of your currency option to be finalized. On the anyoption™ trading platform, this is displayed in the trading box. If your option expires in the money then you will make between 65%-71% profit. If your option expires out-of-the-money then you will get 15% of your initial investment back.

Step 6

So why trade in stock options rather than the stock themselves? There are several reasons for this:
1.Known risk: since stock option trading is a binary option and both outcomes are known from the onset, the owner cannot lose more money than he invested in a trade, hence he is in full control and has full knowledge of any risks.
2. Simple:  since it is the direction that the option moves in that is important and not the magnitude of the move, the trading knowledge that a buyer must have is much less than with traditional stock trading
3.High profits: since the stock is not being purchased, a buyer is not restricted by a high share price and therefore he can invest a small monetary amount for a potentially high profit
4.Flexible: since the buyer can choose his stock, expiry  time and direction of the option, it makes forex option trading a very flexible purchase

For more information on stock option trading on stocks, currencies, indices and commodities, visit www.anyoption.com where anyone can trade.

An option is a contract which gives the buyer (known as the owner) the right, but not the obligation, to buy or sell an underlying asset at a fixed price within a specified time frame.

An underlying security is the item which is being traded. This could be stocks, commodities, currencies and indices. The fixed price at which they buy or sell at, is known as the strike price.

There are two types of binary option strategies: Call and Put.

In a call option, the owner may buy a quantity of an underlying stock at the strike price within a set time frame.

The buyer of a call option believes the market price of the stock will rise above the strike price. If this materializes, then the option (or contract) allows the owner to buy the stock at the original price which is lower than its current price. This means he can profit from buying the stock below its market value and profit from the difference.

In a put option, the owner may sell a quantity of an underlying stock at the strike price within a set time frame.

The buyer of a put option believes the market price of the stock will fall below the strike price. If this is the case, then the option allows the owner to sell the stock at the original price which is higher than its current price. This means he can profit from selling the stock above its market value and profit from the difference.

In the options market, there are both American and European options. American style options can be exercised at any time up to, and including, the expiration date and time. Whereas European options can only be exercised at the expiration date and time itself.

Stock Option Trading is when an owner enters into a contract to buy or sell stocks at a fixed price within a specified time frame.

It’s important to note that stock option trading is different from stock trading. When an owner is buying or selling actual stock or ownership in a company, this is known as stock trading. However, in stock option trading, the owner is buying the option i.e. they are entering into a contract to buy or sell stocks at a fixed price within a specified time frame (see Option Trading).

The benefit of stock option trading is that there is a much greater potential of succeeding in the trade, than if a person bought the stock itself. Since stock options can be purchased at a fraction of the actual price of the underlying stock, it allows the investor to control a much larger amount of stock, if they buy stock options as opposed to shares. This opens up the field of stock trading to a much wider audience.

Stock option trading is a type of binary trading. This means that the payout the owner receives is determined at the start of the contract. When trading, the owner knows exactly how much he will receive should his option expire in-the-money, and more importantly how much he will lose should the option expire out-of-the-money. So there is no worry that an owner of a trade will need to fork out extra funds once trading the stock option has expired.

The option trading of stocks extends further, to the trading of other assets such as commodities, indices and currency pairs. Trading options can be an extremely profitable exercise, since each trade can be personalized to suit the owner’s needs. Once the preferred asset is selected, the owner can choose from a range of expiry times, such as nearest hour, end of the day, week or month.

This means that stock option trading is open to everyone, no matter where they sit geographically or what previous knowledge they have of the financial markets. It is extremely flexible, allowing for unique combinations with every trade.