If you're looking to be more proactive about your financial investments, you may want to consider buying and selling options. There is a misconception that trading options is complicated and should only be attempted by experts, but the truth is that anyone can do the research, learn the basics, and start trading. Here is everything you need to know to get started.
Some investors like trading options because it can give them a big return for a small investment of money. Rather than needing the funds to purchase a big block of shares, you can buy and sell options, which are a fraction of the cost.
For example, if you notice unusual options activity and, thus, anticipate that a certain stock price will rise quickly, you can buy an option to purchase that stock at current prices. If the price does rise, as expected, you make money based on that growth. If it doesn't rise, your option expires without helping you make money, but at least the amount of money you spent was much less than the cost of the stock.
Alternatively, if you already own a portfolio of stocks, trading options can be a great way to hedge your risk and generate revenue. For example, if you own a block of 100 shares in a particular company, you can regularly sell call options on that block to generate income. As long as the stock price doesn't hit or exceed the target price, you keep the money from the options you sold even though the contract expires without any shares of stock changing hands. You are then free to sell another call option and generate additional income on the same block of shares. Some investors successfully use this strategy to earn a continual income stream on the shares in their portfolios.
