A little knowledge can help investors take advantage of the full power of options trading. Here is a quick introduction to four options strategies that traders should know. Some are more complex than others and require varying levels of practice to master.First is the covered call. An investor buys a certain asset and sells a call option on an equal volume of the same asset. Investors who use a covered call think the asset will trade flat in the short term, and they risk of trading options 4 you to profit from the premium they receive from selling the call.In a married put, an investor buys an asset and also buys a put option for an equal number of shares of that same asset.
Many people mistakenly believe that options are always riskier investments than stocks. This stems from the fact that most investors do not fully understand the concept of leverage. However, if used properly, options can have less risk than an equivalent position in a stock. The first defines leverage as the use of the same amount of money to capture a larger position.
This is the definition that gets investors into trouble. A dollar amBetter Together. Never miss a trending story with yahoo.comas your homepage. Every new tab displays beautiful Flickr photos and your most recently visited sites. By understanding risk, you can become a better and more profitable trader.Many investors get excited about options trading because they love the leverage that is possible when an investment goes well.
While stock investors might make 10% or 20% returns on a stock, aggressive options investors could potentially make a 1,000% return in the same amount of time. The savvy options trader recognizes that he or she can control an equal number of shares as the traditional stock investor for a fraction of the cost.Less-savvy traders migh.