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Stock Option Station

Stock Options

by Joy MacKay

Before you learn how to successfully trade stock options, you need to understand them. What are stock options and how can they work for you? I'll give you a quick crash course in how to understand and trade these options below.

Trading on Time

The key to understanding stock options is time. When you are offered a stock option, it is with the understanding that you cannot exercise that option to buy for a specified period of time. However, once that time has elapsed and you have decided to buy, you are guaranteed a specific and generally low buying price.

For instance, let's say that you are offered the option to buy one hundred shares of ACME stock for $1 a share. If you exercise this option to buy when the stock is at $6 per share, you can immediately sell it for the higher price. This means you make $5 per share, for a total of $500, from this trade.

The Value of Stock Options

However, stock options are not a "magic bullet." Like all parts of trading, in order to make money, you need to trade well. Develop winning strategies for option trading and you will begin to see higher returns and bigger profits.

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