Note that I said “long put and call trades”. By going long, or buying an option, you hope to use leverage to benefit from a move that you expect in the underlying stock, and the sooner the better. If you are right going long, you can be spectacularly right, making multiples of your investment in weeks or even days. Unfortunately, it is exceedingly difficult to make money consistently by buying options, and benefits to your portfolio from periodic big wins are outweighed in the long run by more frequent big losses.
Finding Hot Stocks: let’s face it, finding hot stocks that are ready to explode is what every trader is looking for. Combine that explosive price movement with the potential gains of it goes here and you have a winning combination.
This is why the best thing to do is sell the option to someone else. If you wait for expiration you are putting more risk into your trades. Remember that the sooner you get to the expiration date the more the option will decrease in value unless the underlying asset is rising dramatically. This is known as the theta of an option.
Many people fail because of Broker Fees they pay. While when you see the advertised price for example $10.99 a trade verses $5.00 a trade it does not seem significant. But it is. Say you buy shares at $1.00 per share, your cost is $100. Depending on the stock broker you use your fess are 5.00% 0r 10.99%. Today with the unpredictable future people are not buying stock and holding it forever. They trade often. Many are day traders. The more trades the higher the broker fees.
In early June I bought one options contract on ABC: the July 45 CALL. My cost was $550 plus commission of $25. ABC stock was trading at $50. Now let’s walk through this thing.
The best advice that I can give to the people who plans for investment in stock trading is that to choose a company which have a good media attention. I am telling this because there are some firms which will have a great boom in their business just by a media boost of their product. It will raise the gain on their stocks.
ETrade has good customer service and loads of powerful research features, but they cost a little more and have no free trades (to my knowledge). If you are going to get into serious stock options trading, Zecco Trading is the best I have found in terms of “ease of placing complex orders” and getting orders filled. Basic option purchases, selling naked, credit spreads and debit spreads, collars, straddles, and strangles are all easy at Zecco. They even have butterfly and iron condors available although I haven’t used them so far. Plus, you get some number of free trades each month and option trades are only $4.50 plus a few pennies per contract. Zecco customer service is okay.