Let’s face it; not everybody is 100% clued up about the stock market, or the world of finance. In fact, a vast majority of people are not. A lot of people are content to live their lives without caring too much about the best ways to invest their money. But what about the people that do? Is the world really divided into People who know all about the stock market and people that simply don’t? Of course not, there is a middle ground under which plenty of people fall. There are people who know nothing or very little about stock exchange, but would like to learn more about the various on goings. If you’re one of those people in financial no-man’s land, then this article is perfect for you, as you extend your knowledge on stock market matters by learning about Options trading and this is exactly what you will learn in the Options MD program when it is released.
The Difference Between Stock Trading and Options Trading
Options trading, while a very active part of the stock market, is completely different to stock trading. As a beginner it’s important you understand the definitions as well as the differences. So what is an option? In the financial world, an option is a contract that gives you the right (But not the compulsion!) to buy an asset.
So basically, if you own a stock, you are now in ownership of a part of Company X. But if you own an option, you have the right to own a part in Company X, but you don’t have to take up that option to buy that stock. Typically, an option will be agreed upon by two parties, and you will be given a date before which you will have to make your decision.
Why is it A good Idea then?
Think about it for a moment. When you purchase a stock, that’s it, you’re stuck with it (Until you decide to sell it!) And whatever happens to the value of the stock affects you immediately. This can be extremely good if you’ve invested wisely, or disastrous if you have invested poorly. If you’ve agreed on a stock option however, things are slightly different. First of all, the price that is initially agreed upon remains the same, regardless of what may happen in the market. So imagine you agree on an option to purchase $1000 stock from Company X before the 1st of April, and today is the 1st of February. In the next two months the value of Company X’s stocks sky rockets and now your stock is valued at $100 000. Suddenly you have the option to purchase a very valuable stock, for the price upon which you initially agreed to purchase it!
What if the opposite happens?
What happens of the value of the stock plummets completely and is now worth $1? That’s alright. You’re well within your rights to not take up the option and kindly walk away without having made a $999 loss in the stock market! It’s shrewd, patient business.
There are many more factors involved in the whole process, especially when it comes to the actual contract negotiations, and other risks involved. But this is essentially what Option trading is all about. You’d do well to learn more about the entire process, and who knows, you could find yourself making some smart decisions in the stock market! If you want to learn more and go even more in depth then you will want to see the Doc Severson’s OptionsMD system.
