By Amit Kothial
If you are one of those who want to gain huge profits from stock options, then it is very important for you to understand the meaning of option trading. At times it can be difficult to learn the exact difference between trading in the stock market and trading in the stock options market. In fact option markets are parallel to futures markets, that give you the right as a holder to buy or sell the underlying commodity for a specific price on (European options) or before (US options) a specific date in the future (known as the expiration or exercise date). Based upon the similar fundamental instruments of futures, it also has similar contract specifications. However, the options are traded differently. Available on futures markets, on stock indexes it can be traded on their own using various strategies, or can be combined with futures contracts and used as a form of trade insurance.
Options trading actually act as a best means to earn money. It is more like giving out cash in exchange for potential profit. You buy assets or things of value, with hopes of producing income in the end. It is available as either a Call or a Put, depending upon whether they give the right to buy, or the right to sell. The Call options give you the right as a holder to buy the underlying commodity, and Put options provide you the right to sell the underlying commodity. However, be it a call or put option, it can be bought or sold on registered exchanges. You deal with buyers and sellers of options/stocks, hoping to bring in more profits.
The best part about Options Trading is that you can have a better control on both the probability of risk and the consequence of risk. In stock trading, you cannot actually control the prospect of loss because you win only if the stock goes up. But option trading reduces the probability of danger as there are options strategies that profit when the stock goes up, down and sideways all at once. Besides this, it also reduces the consequence of risk through leverage.
Today, certainly the success in options trading is determined by price movements and investor's attention to either volatile or commodity stocks. Proper control using bear market options trading strategies can certainly put extra cash in your pockets. Moreover, it can further give you the edge when the next bull market occurs.
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