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.