Options Trading - Make Smart Trade Decisions
One of the option trading methods is the Long Straddle
. The long straddle trading method involves a trader making a bet that a certain product or service would trade above or below a certain price. If it trades between two points earlier determined in the bet, the trader loses a predetermined amount of money. This type of trade is also known as the Long Strangle.This type of trade makes the trader acquire a higher influence in business. In the United States one option contract stands for one hundred underlying shares. In some countries in the world it can even amount to thousands of them. As this type of trading involves betting it is therefore a very dangerous type of business for those with little or no experience about it as one might end up losing huge sums of money in case of losing the bet. On the other hand it can fetch you huge amounts of money in a very short time.
The option strategy involves the immediate buying and selling of several types of option contracts commonly referred to as Options Combination. There are several other options strategies which use multiple legs for their structure although a one legged is also a good option strategy.
In an example where an option trader predicts that the price of a company share might rise over a certain period the best way to make money in a less risky way is to buy a call option or sell a put option. There is another possibility that a trader can buy a call option and at the same time sell a put option. In this case as an option buyer it is very easy to lose more than gaining. If all goes wrong and you miss the bet, you end up losing on both therefore losing double the amount of profit you intended to get.
Options trading becomes profitable if the put option becomes less valuable due to the market trading higher and you had bought an option giving you the assets sale rights. The call option turns out valuable with higher trading. The call option becomes worthless if the market sells off. There are several other ways that a trader can combine options contracts together with the underlying asset in customizing the risk that might arise from the trade.
Options trading requires more factors apart from just the market direction view as per the underlying asset. It is good to understand and decide what a trader thinks will happen to the market underlying assets and their prices stability. With an option contract where its prices seem to be fifty percent more expensive than it was before, it is advisable to buy the option and sell it immediately at a profit. This can easily be analyzed by the tools designed to analyze the volatility of an option. However, this type of trade is extremely risky and very complex, requiring a highly experienced trader to go about it.
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