Trade Options

One of the factors that you need to consider is the price. The success of your strategy depends mostly on the movement of share prices in the stock market, so you need to decided where the share price headed. It can rise, fall or just remain steady. Once you have determined where the share prices will go, you can now narrow down the number of strategies that you can use.

Where is the market headed?

Apart from the direction of the stock market, traders also have to consider volatility. There is a limited time to the movement of the market whether, its going to rise, fall or remain in a price range . Volatility is about the fluctuation of share prices in the market that will greatly affect your profitability whether you take or write a call. If you buy an option because you think that the stock market will take off, the chances of the expected movement before the expiry date will fall if the stock becomes less volatile.

The third factor that options trader need to consider is time. Unlike shares, they have an expiry date that traders are bound to. In options trading, the movement that you are looking for, whether its a rise or fall, must take place by the expiry date. After the expiry date, the option is worthless. So its no just about the movement and fluctuation of price, you also have to think about the time frame.

Options Time Frame

Options provides traders more opportunities in comparison to share trading. Unlike in a futures contract, traders don't have an obligation to buy and sell, and can let the expiry date pass by without doing anything. An options trader can take or write calls, take or write puts, trade a combination of the previous two, do any of the previous steps with the purchase or sale of the underlying shares. With all of this how do you choose the right strategy to make profits out of options trading.

Takers and writers

Options and futures are similar in a way that they are both based on trading that involves subsequent events. Buyers and sellers are making a short time gamble that the price of the underlying financial instrument will soar and drop. Both contracts are also considered advanced forms of share trading, require additional training or the use of a specialist to be able to fully understand their characteristics.

Shares and options are both traded on the ASX. Shares are evidenced by a stock certificate, while options are contracts.

An option is the right to buy or sell property at an agreed price; the right is purchased. It is also a contract between a buyer and a seller that gives the buyer of the option the right, but not the obligation, to buy/sell a specified asset. If not exercised by a stated date the money is forfeited.

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