In the ever-complex world of the stock market, a beginner may feel lost while trying to understand how to step into trading options successfully. To get started with options trading, it is essential to understand what options are. Using one of the best options newsletters available, like one from Schaeffer's Investment Research, can be very helpful in the process of learning to trade on one's own.
Options are amongst the myriad of “derivatives” found in the stock market. A derivative, as the name suggests, derives the value attached to it based on the value of the underlying asset it is focused on. This is the case with options; the profit or loss associated with options comes from the value of the underlying asset, or stock. To learn more about how the value of options varies, consider going through Getting Started with Options. This program is published by one of the best options newsletter publishers, Schaeffer's Investment Research.
What are Options?
Along with being a derivative by nature, an option is a contract that provides the holder the buying, or selling, rights of 100 underlying shares. The contract further specifies the set monetary amount at which the shares can be bought, or sold, alongside deciding a duration during which these transactions can happen. To find out more about what options are and how to start trading them, you can always subscribe to Bernie Schaeffer's Option Advisor, the world's best options newsletter. The Option Advisor provides a rationale for each trade recommendation along with an educational concept breakdown and a monthly trading outlook. These are all great tools for beginners interested in being more active in the options trading market. It should also be noted that an options holder is not obligated to buy or sell shares. Rather, the options holder has the option to choosing whether or not to exercise the option dependent on the options contract value.
How Does the Expiration Date of Options Work?
All options have a specific expiration date that is chosen upon the placing the trade order. The options contract needs to be exercised before this date. After the options has expired, the contract is automatically closed by the trader's brokerage at the current market price ahead of the market close on the day of the expiration. Options traders can buy a huge variety of options with different expiration dates. The expiration can be one day away, a few months away, or even years away. The best options newsletter also provides complimentary educational information for options traders that further elaborates on how expiration dates are set.
What is an Options Premium?
The payment that is made for an options contract is called an options premium. Because options that are bought are representative of typically 100 shares of the underlying stock, the fixed price of the premium represents 100 shares as well.
There are several influencing factors that can impact the costs of the options premium. The best options newsletter publisher, Schaeffer's Investment Research, deliberates these influences extensively to ensure customers have the best pricing for every options trade. One thing that influences how much premium the option trader pays is the difference between the market price of the stock and the strike price chosen for the options trade. The options strike price is the price that is specified on the options list for the stock, which determines the buying or selling price of the option in the future.
How far out the expiration date is from the purchase date is another factor that influences the cost of the options premium. This factor is called an option's time value. If the expiration date is further out, there is a greater time value, and thus, the options premium is higher.
A third factor that impacts the value of the premium can be described as how unpredictable the market price of the stock could be throughout the holding period. This factor is otherwise known as the implied volatility of the stock. If there is a strong chance that the market price of the stock will swing in any direction, the premium is more likely to be on the higher side. On the other hand, if the market price of the stock is likely to be stable, or having low volatility, the resulting options premium will also be lower.
Bernie Schaeffer publishes the best options newsletters available on the U.S. equity market. Every options newsletter provides a detailed explanation of every trade recommendation along with rationale for how the options premium was decided. This information allows traders to gain a deep understanding of how premiums are calculated and the major part premiums play in increasing the probability of money-doubling trades in options trading.
How Do Profit and Loss Occur In Options Trading?
The money made through the utilization of different options strategies depends upon the quality of diversification in one's options trading portfolio. Sticking to a single options strategy is the equivalent of putting all of your eggs in one basket, and does not bode well for unexpected market moves. Going all in on one options strategy won't end well for a trader in the long term.
The potential loss associated with trading options is oftentimes limited to the premium paid, while the profit is theoretically unlimited. This is called convexity.
In conclusion, there are several options strategies suitable for beginners. To explore these, subscribing to the best options newsletter, completely free, will come handy as one grows as an options trader. Here, you will find easy to understand explanations of many different strategies you can benefit from in options trading and the Schaeffer's market outlook for the coming week. An options newsletter can become your ultimate guide to gaining a detailed insight into options trading and learning one you can benefit from the benefits of options trading as a beginner.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
