Stock Trading Information Blog

If you’ve read my previous blog, you know that options are another way to increase income. Options aren’t just to protect underlying stock or increase your profits in a down market. Some people trade options instead of stock. It gives them an opportunity to play the market for less money.

Of course, if you purchase a call option and the price never goes up to the strike price, you run out of time and lose the entire cost of the option. You can retrieve some of your money by selling the option before the expiration date.

Options, if you use them correctly, can help you make more profit and protect that profit.  The options trade for a fraction of the price of the stock and vary in price from the original cost just like stock. Some people never actually intend on buying or selling the underlying stock when they purchase options but want to make money from the price change in the options.

Because it’s a fraction of the price of the underlying stock, it’s a way to trade expensive stock without a huge outlay of money but still very risky.

Selling a naked call option, one where you don’t hold the underlying stock, is not for the faint of heart or those with a limited pocketbook. Since they don’t own the underlying shares of stock, they’re simply gamble the price won’t rise.

People selling uncovered calls are in a similar position to people that sell short, sell without owning the stock in hopes the price drops and they can buy it cheaper than they sold it. They face the potential of huge losses if the price of the stock skyrockets.

Doing either or both of these, increase your profit potential but are foolish moves for the beginner and often for the seasoned veterans of the stock market. You may have heard of derivative trading that got so many financial institutions in trouble. Options are derivatives of the underlying stock.

If you use options correctly, you can make more money and protect your profits. If you use this tip, remember me. I want you to succeed. Remember the more you know, the more you succeed. The more you succeed, the better I look.