9-00 Chapter 9: Introduction to Options
Once you feel like you have a good understanding of how the stock market works and are getting comfortable trading them, understanding how to trade options is the next step in your journey. Options appear to be complicated at first glance, but with a little reading and a little practice, option trading can become as second nature as riding a bike! Most people don’t trade options, but they are an important tool for investors since they can earn you money several different ways. Here are 3:
- When the market moves in the direction you expect, trading options will amplify your profits.
- Protective put options help you protect your profits in stocks you currently own and have achieved gains.
- Writing (selling) options can add income to your portfolio in a flat or stagnant market environment.
The language of options is a little more difficult to understand than stocks, but keep reading and we will make it crystal clear. This chapter can put a lot of money in your bank account (or conversely, take it away)! So make sure to take advantage of your virtual portfolio to practice trading options. This is the best way to learn how to place your “spreads” to maximize your gains and minimize your losses.