Trade options for beginners

Bear markets and price corrections have plagued stock prices since the dawn of our modern marketplace.

Call Options Strategies - Options Trading for Beginners | InvestorPlace

While it would be delightful to ban the volatility beast once and for all from Wall Street, such a fantasy only exists in the profit-filled dreams of perma-bulls. Fortunately, educated investors have a number of weapons at their disposal to not only survive the occasional volatility attacks, but profit from them. While call options give you the right to buy stock, put options give you the right to sell stock.

A put option gives the buyer of the contract the right, but not the obligation, to sell shares of stock at a specific price on or before an expiration date.

Trading Options for Beginners

This right to sell a stock at a set price becomes increasingly valuable as the stock price falls further and further.

This is why buying put options is touted as a bearish trade and can produce big profits when stocks tank.

Buying a put is a heck of a lot cheaper and offers a fair bit more leverage. The first step to buying put options is identifying a stock trade options for beginners believe will fall in value. Then, determine how long you plan on being in the position. Because options have an expiration date you have to choose how much time to buy.

WMT is going to drop over the next two months. Rather than simply buying a two-month put option, try grabbing an extra month or two for good measure. Plus, you will limit the effect of time decay by using longer-term trade options for beginners.

The next choice involves selecting which strike price to buy.

Beginners Guide to Options

Buying in-the-money put options is more conservative so consider starting there. Binary options industry is that it puts are those with a strike price above the stock price.

The initial cost also represents the max risk in the position. The reward for buying put options is limited only by the stock falling to zero. Just like a stock trade, the objective of our put option play is to buy low and sell high.

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Put Options Trading - Buying Puts for Beginners | InvestorPlace

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