Trading Options: Using Puts And Leaps
One of the great things about trading options is that you can make money when the market takes a nose dive. Most people know about short selling, which has almost a mythical status among individual investors. Shorting is an important part of the market, and investors who play the short side provide liquidity to the stock market.
Investors are quite aware that at some point, markets and stocks will decline. This is an inevitable occurrence in the stock market. Moreover, prices of stock always fall faster than they rise because of the very high level of fear investors have of losing their investment. Buying put options is a way to take advantage of these slides for those active in stock options trading.
If you provide a put option then it forces someone to buy, a stock or underlying security at a fixed price sometimes in future. Put option have a short time period, either expire or the buyer can exercise the contract any time before the expiration. Investors who do not want to borrow the stock but go only short or want more leverage can use put options with better success.
This is what is so wonderful about trading options and using puts is that short positions have a faster payout and larger wins when you compare it to long positions. People who invest in short stocks, have a choice of choosing to buy puts, Long Term Equity or LEAPS. When you learn option trading, you will realize that LEAPs are active for at least a year or longer.
These days it’s become easier than ever to short a stock via put options and LEAPS fir tens of hundreds of stocks, and more every day. Trading options gives you literally more options, and with put options, shorting stocks doesn’t mean buying on margin, using your capital, or stressing about the outcome.
Trading options, whether for the short-term or long-term, allows investors to short a complete index. An index is either a market segment (like oil or transportation), or an individual company. Shorting with put options is a great way to profit from stock market downturns. If the market takes a nosedive and you’ve only got long positions, you have to either sell or sweat it out. But if you go short with put options, that isn’t necessarily true.
Trading options allow you to actually make money during periods of market decline. Most investors know that the stock prices always drop faster than they rise because fear is much stronger than greed. Fortunately, stock options trading lets you take advantage of these slides when you buy put options. Investors can short stocks in multiple ways including outright shorting of a stock or buying Long Term Equity Anticipation Securities, or LEAPS. As you learn option trading, you’ll come to find that LEAPS are options that don’t expire for a year or more.
- David Baxwell
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