Finance Tips

You have probably heard of the idea of using ‘options’ in trading on the stock market, as one possible active strategy to use in preference to buy-and-hold. You have probably heard of the fact that option prices are much more volatile than share prices, and that you can buy and sell options without ever having to buy the shares themselves.

If you are just starting your options trading training, you may not yet understand where these ‘options’ come from. If I buy a call option, I am agreeing with another party that I can choose to buy the corresponding shares from that party, at the agreed price, at any time up to the expiry date of the option. But, as in any deal, there are two sides to this trade.

If I can buy the option from the other party, then he is selling the option to me. He can do this because he actually owns the corresponding shares, so he can supply the shares to me if I choose to exercise my option in the future. Continue reading ‘Option Trading Training – make the move from gambling to sound investment’ »

A portfolio of stocks and shares is a standard investment strategy that exactly fits the bill in the search for a source of passive income, which is generated from the annual earnings payout from the shares. I am not a professional advisor, so this is just a personal opinion, but I do not think that a buy-and-hold portfolio is a safe strategy for your hard-earned cash right now.

If you are going to invest in the stock market, I believe you need a much more hands-on approach than buy-and-hold. Even so, a few hours portfolio management per week beats a full-time job. With a more active approach, investing in the stock market can be a wealth-building programme, not just a place to park your existing funds with a view to a slightly better return than the banks will produce.

There are many different approaches to managing your investments rather than buy-and-hold. One area worth looking at is options trading – when you buy options, you are not acquiring the stocks themselves, you are buying the right to make an agreed trade at some point in the future. This can be used when the stock values go up OR down, by buying the right kind of option. There are 2 basic kinds of options:

Call options – these give you the right, but not the obligation, to buy shares at an agreed price on or before an agreed expiry date. If the actual price of the shares rises above the price agreed in the option, then the holder of the option can make a profit by buying the shares at the option price, and immediately selling them at the higher market price. But there is no need to do this buy/sell transaction, since the option itself has an intrinsic value in this situation and can itself be traded. Continue reading ‘Option Trading Strategies – a change from buy and hold’ »