Best way to generate income in Stock Option Trading
If you are new to Stock Option Trading and want to know “How to Trade in Stock Option”, then you can find your queries related to option in the following content presented by ProfitAim Research.
About Stock Option
Stock Option is an agreement between buyer and seller. Gives the RIGHT to the BUYERS and the OBLIGATIONS to the SELLER to buy or sell the stocks, at a later date, at a certain place.
· 1 Contract = 100 shares
· Premium: Price per contract of the option (Bid and Ask).
· Strike: Price that shares can be bought for call options, or sold for put options.
Stock Option Classifications
· Call Option : An option which gives a right to buy the underlying asset at a strike price.
· Put Option : An option which gives a right to sell the underlying asset at strike price.
· Both the Call and Put option buyers are buying the rights, that is they are transferring their risks to the sellers of the option.
· For this transfer of risk to the sellers, buyers have to compensate by paying Option Premium while trading in Best Option Tips.
· Option premium is also known as Price of the option, Cost or Value of the option.
The Stock Option Chain
· Volume: Contracts traded in current day
· Open Interest: Outstanding contracts not yet exercised
· Delta: +/- of option price related to $1 move in stock.
· Gamma: Measures rate of change of Delta
· Theta: Time decay, drop in price of option per day
· Vega: Measures change in Volatility
· Delta 0.4, stock moves up $1, the option goes up 0.40
· Gamma 0.1, Delta goes to 0.5 if stock moves up $1
· Theta 0.08, Option price losses that per day all else equal
Entries and Exit
Which options to play?
· Bid/Ask Range
· In or Out of the Money
· Much more tricky than with stocks
· Wide bid and ask stop out
· Sell while the stock is moving in your direction at the ask, not chasing the bid down.
Selling Options for Consistent Income
· “Sell to Open”
· Paid premium right way for Sureshot Stock Option tips
· Only for companies you WANT to own, even with no intention to do so
· Stock stays above strike, you keep premium and walk away
· Stock falls below, you keep premium but must buy 100 shares per contract
· Margin vs. Cash