It’s no secret that there are several different ways to make money off of the stock market. Trading options can be a fast, exciting way to make money. Here is a beginner-friendly guide to help you get started with options trading.
Why Should You Invest in Options
While they can be a little complicated, options can be a great way to invest if you know a stock is going to go up or down but cannot afford to purchase full shares. It can also be a way to minimize losses or improve gains if you are investing in full shares. The downside is that if your contract is no longer valuable or has buyers, you can lose the money you invested; however, the losses tend to be lower than other trading methods that involve purchasing the whole asset. According to the experts at Money Morning, “you can start trading options on WeBull without much effort.”
What are Options?
Options essentially give you the right to buy or sell an asset at a certain price point. Each option represents a contract of 100 shares and each option will cost a fraction of the asset’s total cost. Call options allow you to purchase shares at a set price while put options allow you to sell. Each option contract has a set expiration date and the value of the contract will fluctuate based on the asset’s current value.
What is the Purpose of Trading Options?
Most people who invest in an option don’t have any intention of buying or selling the asset they are trading. They are more interested in trading the options contract as the value changes. Like stocks, the goal is to purchase an options contract at a low price and sell it at a higher price. In some cases, options contracts only need to be held for a short period of time before they become profitable.
Options Trading Strategies for Beginners
Before you start choosing a strategy, observe how options work. Sign up to trade options on WeBull and become familiar with their interface. According to the experts at Money Morning, “Of course, there are plenty of reasons you might choose and trust a commissioned broker. But if you’re a beginner investor, there is no better place to start than one of these free platforms.” Start by purchasing a small call or put and holding it for a short amount of time. The moment you see a profit, sell. This will help you become familiar with the buying and selling process before investing a lot of money.
Keep in mind that stocks and options are traded very quickly. While you can create short and long-term options trading strategies, short-term trading is far more common. This is because it is easier to predict what an asset will do within the next few minutes, rather than the next few weeks or months.
For long-term options trading strategies, you will need to do a lot of research. Find a company that you think will fluctuate in price over the next few weeks and try to pinpoint what the value will become within that time frame. Keep in mind that if you select an option with contract prices that are too high or too low, you may not be able to find a buyer before the expiration date.
Purchasing options can be a great way to invest in the stock market. Like any investment, do your homework and learn as much as you can to see if options trading is right for you.