This is part one of the Options Series. In this article, we will answer the question of What is Options Trading?
Options trading is a type of stock market investing which can provide fast and great returns with limited capital. This strategy requires a relatively low upfront financial commitment compared to regular stock trading. It is often less than 10% of the cost to buy the stock outright. As a result, there is the potential for incredibly high returns on investment. However, this strategy also comes with its fair share of risks. While skeptics always mention the possibility of unlimited financial losses, the fact is that like most things in life, options trading requires you to understand the risks before you start placing trades. There are risks and benefits and your financial situation must be taken into account to properly position size your trades. Any type of investing carries risks and this also holds true for options.
Options trading may seem overwhelming at first, but it’s easy to understand if you know a few key points. Investor portfolios are usually constructed with several asset classes. These may be stocks, bonds, ETFs, and even mutual funds. Options are another asset class, and when used correctly, they offer many advantages that trading stocks and ETFs alone cannot.
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Check out this link from Investopedia if you want even more details on Options.