December 24, 2009
Is trading stock options suitable for my needs
Do you need a discount online stock broker for trading stock options? As you may be aware stock brokers differ a lot when it comes to quality and cost.
There seems to be an every growing number of brokers out there. All of them are extremely keen to get you to deposit your hard earned cash with them.
Why trade stock options? The main bonus of buying stock options is that they can lower downside risk massively. If you use an easy options strategy like simply buying a call or a put, your greatest loss is going to be the cost of the premium.
If you purchase a call option and your stock crashes by 90%, your only loss is still the premium. If the stock doubles in value, you get to keep all of the profit minus the premium.
The fees that stock trading brokers charge for stock options starts at around 15c a contract. However, I have seen brokers charge in excess of .
If you are looking to trade a high number of stock options then the cost can end up having a significant effect on your bottom line. You want the profit to end up in your pocket, not the pockets of a stock broker.
If you trade stock options, you can select a strike price. The strike price is the price the owner of the contract can buy the stock at in the case of a call option or sell in the case of a put option.
A call option is said to beat the money if the strike price is equal or very near the current stock price. It is referred to in the money if the price is less than the current price of the stock and out of the money if the price is higher than the current stock price.
The totral oposite is true for a put option.
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