Online Options Trading

Written by Michael Federico
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Placing an option order gives a trader the opportunity to buy and sell stacks at a certain price. A person who believes a certain stock price is going to go up quickly can place an order to purchase the stock at a lower price. For instance, if a stock is selling at $13 but an investor believes it is going to climb, he can place an option to buy 100 shares at a slightly higher price. If the stock reaches that price (the strike price), the transaction will take place. If the stock continues to rise as the investor foresaw, he can make a lot of money on a sale.

People will often say that if a person thinks a stock price is going to rise, he should just buy the stock. However, if he makes the wrong decision, he will lose money. Options leave a person a bit of leeway. If the predicted price rise does not happen and the stock never reaches the strike price, the transaction will not take place and the investor will not have to purchase the shares.

Setting up Online Options Accounts

New investors often rush to sign up with an online trading service. They do not fully explore everything that the site has to offer. Using a mediocre online broker is no different than using a mediocre investment firm. A trader simply will not have as good of a chance to be successful.

Many online services have just started to offer options trading services. This does not mean that they should be avoided. However, if a person can find an online broker that has had the time to perfect its options trading services, he will usually have access to more information and more choices than a trader who uses a less experienced options site.


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