Company shares are possibly the most familiar type of asset for investors and traders. However, conventional stock options trading involves the trader acquiring a right to buy or sell shares at a pre-determined price. This can require a large outlay of money and is a risky business where you may well lose everything. Using binary options is a simpler process where the risks are much less and you can make large profits quickly for a relatively small outlay.
For anyone wondering how to trade stock options, it’s simply a matter of choosing your company and then staking an amount of money on a forecast that its share price will be higher or lower at a set time. And the company may be quoted on one of many global markets, giving you plenty of choice for trading stock options. In the US alone, there are over 3,000 shares quoted on the NASDAQ Composite Index and 500 on the S&P 500, while the availability of markets around the world means you can trade stock options at most times.
Selecting a company that’s involved in a new and vibrant sector is likely to result in a rising share price over time so a series of call options will generally be a good strategy when trading stock options. Conversely, when the industry is outdated with products that are no longer in demand, the opposite is true. Choose put options as the price moves downwards.
Stock Options Basics
There are a lot of sayings associated with trading stock options and, while you don’t want to get too involved with them, you should try to stick with stock options basics. The way to really make money when trading stocks conventionally rather than through stock options trading is to buy at the bottom and sell at the top, which means you’re getting your shares at the cheapest price and selling them when they’ll give you the best return. The problem is identifying when a share price has reached the bottom or the top, which is impossible to do consistently.
This isn’t an issue when using binary options because you’re not concerned how high or low the price of a stock will go, simply whether it will go up or down. The fact that it might keep changing direction is an advantage for stock options trading because you can make a series of short-term trades and take advantage of each movement.
Following trends is another proven method. Prices do tend to follow trends for a period, which may last for many weeks or even many months, and so picking up a trend early can lead to a long run of successful trades. Although there will be peaks and troughs within the overall trend, the general movement will be in a particular direction. Those wanting to know how to trade stock options are advised to follow the trend more often than not. Applying stock options basics will generally result in a successful outcome.