Market and Investment

I’ve been investing for a long time, and more recently I’ve had some great success in the world of stock options. While they’re risky, they can also be an extremely rewarding means of making money if they’re handled right.

I’m going to share a few things I’ve learned along the way in an effort to help you to as much success as you can possibly find. The world of options is an extremely tempting one, but a dangerous one at that. Some traders end up losing their whole investment on one bad trade.

The first thing I’d like to talk about is the time decay factor. Options tend to deteriorate in value over time due to the fact that as you’re further out from the expiration date, the likelihood of volatility is higher.

Let’s say you buy a contract for December while we’re in the month of April. The stock price is at $13, and the strike price on the contract is $16. Clearly, there’s a higher percentage chance that this stock will break $16 between now and December than there is between now and May. As a result, contracts with an expiration date that’s further out will sell at a higher price.

Additionally, the concept of protecting your investment on an option trade is a really important one. Too many people throw all of their eggs into one basket, not accounting for the possibility of the opposite of what they expect.

Try buying a few contracts in the opposite direction. That way if you lose out big time, those contracts will win big.

Sure, you might not make as much money as you otherwise would have, but investing something like 5 or 10% in the opposite outcome can ensure that you lose much less than all of your investment should your option never hit its strike price.

By adhering to these tips, I’m sure of the fact that you’ll be well ahead of the typical novice.

For more articles by this author, read his blog about cheap worldwide travel insurance and single trip holiday insurance.