Author: Joel Stockman
Article Summary
Options are like the atoms which combine to form the molecules called stocks. Stock options are derivatives. Each option contract represents the right to buy or sell 100 shares of the underlying stock on or before a certain date.
Would you mind constant income coming your way month after month with a relatively low element of risk? Surely you would! What are you doing while people are busy using options extensively to grow their portfolios and generate handsome incomes? Don't you wish to achieve your dreams like they do? Here's an insight to options income strategies.
Inexpensive investment
Options are like the atoms which combine to form the molecules called stocks. Stock options are derivatives. Each option contract represents the right to buy or sell 100 shares of the underlying stock on or before a certain date. Unlike stocks, the options are very inexpensive. Thus, options income strategies involve a potential lower risk and a lower initial investment than stocks. Their lifespan though is small.
Types of options
Calls and puts are the two types of options and there are two sides to every option transaction: the party buying the option which has a long position and the party selling the option having a short position.
A call is the option to buy an underlying stock at a pre-decided price by a pre decided date. Whereas a put is close to being the opposite. Bing long a put option gives the owner the option to sell the underlying stock at a predetermined strike price until the expiration date
Three main option strategies for income generation
There may be different investment objectives behind using options all aimed at reducing risks. The two strategies commonly used involve selling options while the third is buying call options and is growth oriented with unlimited profit potential. The detailed procedures are:
- Selling covered calls
- Selling puts
- Buying long term calls
What you want and for the time you want
In contrast to stocks, options will allow you to limit your capital and investment and is subjected to risks to only those portions of a stock's price movement that you want and only for the time period that you want. This will render the trader the unlimited flexibility to alter his directional and temporal outlook concerning a stock and he will do so with potentially lower cost and risk.
With ease and speed
Do you fear how troublesome the authorization to being an option trader will be? Well relax it's just a matter of five minutes! Yes just five minutes. The online investors who are opening up new accounts have to merely check a box to indicate that you want options trading authorization and then a couple of pages with questions on options should appear. Everything should go with relatively ease and speed.
Article Source: http://www.articlesbase.com/strategic-planning-articles/options-income-strategies-involve-low-risks-and-lesser-investment-7192070.html
About the Author
Joel Stockman is an independent trader and writer. She is also a stock market enthusiast and loves to write about trading system. Her articles are helpful for the beginners in options trading.
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