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"Stocks Mutual Funds" Article
 Article Directory Home Finance Stocks Mutual Funds

Option Trading, An Excellent Chance To Make Money

By Expert Author: David Baxwell
View Summary | Submitted: 2008-08-14 | Word Count: 388 words | Views: 75 view(s)
David Baxwell
When looking to build stable profits, the stock market is ripe with prospects. Option trading is one of the prime opportunities available to build your assets and holdings. When you combine the massive capital and stability of funds that the stock market has to offer it is easy to see why these elements are traded daily.

Armed with a good strategy, you stand in a position to turn a profit on the stock market. Trading options, as we said earlier, is one of the most lucrative ways to earn money with stocks. Credit spreads are another one of the popular option strategies available, as long as you know how to use them.

Credit spreading is a credit in your account to use for trading. This is used as an alternative for a debit when you are purchasing either another stock or for a derivative. That is also why they are commonly known as credit spreads. Also they allow you to keep the accredited resources if the options were to expire. This also applies if the price of the share has not reached a definite level.

So why is it that a complex combination of long and short options can give a credit? The answer is simple-- you are selling a short option for slightly more than the premium on the long option you are purchasing.

At the same time you are keeping the risk of the investment in check by buying an equal number of options at the spread-out cost, with each of them expiring at the same time. Doing this when you're option trading will keep your sell option closer to the cash or available share value, which is usually higher than the buy option for which you can get a credit.

One major facet of option trading is to trade credit spreads with short expiration periods, which means you can gain from the time delay feature in options. Options usually decay over time, and the rate of decay grows quicker as the expiration time gets closer.

Therefore a credit spread which has 5-6 weeks expiry period is advantageous. You may also go for less than 2 weeks expiry time. Only thing is that you have to be very vigilant regarding the manner in which the share would move because the time period is less. Seeing the MACD indicator also helps a lot.
About the Author/Author Bio

Option trading is one of the prime opportunities available to build your holdings. When you combine the massive capital and stability of funds that the stock market has to offer it is easy to see why these elements are traded daily. Credit spreads are amongst the most popular option strategies.

Article Source: http://www.articlesphere.com/Article/Option-Trading--An-Excellent-Chance-To-Make-Money/160056

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