Toronto, ON (PRWEB) March 4, 2011
Options Trading has always been a valued investment tool for Professional Portfolio Managers and Investment Dealers. They can be used as an insurance policy against loss, a method of acquiring new stock at a reduced price and generates constant cash flow from stocks already owned or wish to own.
"Unfortunately, a general lack of understanding has created myths that keep this great investment strategy out of most individual investment portfolios," says Jason Ayres, President of optionsource.net.
Mr. Ayres goes on to explain that “Options trading is about control over rather than ownership of a certain security and that is what most people have difficulty understanding.
"By owning control, the options trader has the right to buy or sell a stock at a specific price and period of time”. There is always two sides of an options trade, the seller of the option and the buyer of an option and under the right conditions anyone can be on either side on the trade.
Options traders control a large amount of stock with a relatively low amount of capital. This means you can take advantage of an anticipated price movement either up or down regardless of your account size. Options are attractive because you can never lose more than the cost of the option, so your risk is always identified up front before you invest a dime.
One common use for options is to generate cash flow while acquiring new securities at a reduced price.
This is easily accomplished by first selling a PUT option which gives someone else the right to sell you the underlying security at a specified price at a predetermined time in the future. At that time if the underlying security has a market value that is at a higher price than your PUT option strike price, the option will expire without ever being executed and you keep the premium you got when you sold the PUT option. If the actual market value of the security is selling at a lower price than the option strike price than the option will be exercised and you will own the security at that option strike price. Although higher than the current market price, you still keep the premium you received when you sold the PUT option which often covers the difference and you now have acquired the security for less than you would have if you had bought it outright in the first place.
There are many ways to use options trading to enhance any investment strategy because they offer exactly what their name states "Options".
An official provider of options trading education for the Montreal Exchange, brokerages, financial institutions, investment dealers and individuals who want to learn where the professionals go to learn. The content provided here is not to be considered as investment advice but is provided solely for informational purposes only.
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