How to Invest in Options Colorado

Steps

1. Understand the basics of what an option is:
   • An option is the right - but not the obligation - to buy or sell a stock's index or future at a specific price for a specified amount of time.
2. Understand how options work:
   • There are several benefits to buying stock options as opposed to buying the stock outright. They are relatively inexpensive, particularly when compared to the cost of the underlying instrument. For instance, you might be able to buy stock in XYX Corp. for $1000 per share. Stock is commonly traded in blocks of 100, so you would spend $10,000 for this position.
   • You can control the same amount of stock for a fraction for that price by buying an option instead. The options might be listed for 8 points. So by purchasing options, you will spend $800 instead of $10,000 to control 100 shares. (Stock options are for 100 shares, so $8 X 100 shares gives you the price of $800, not including your commission.)
   • Keep in mind, you are NOT buying stock, you are leasing its profit potential for a given amount of time.
3. Learn the difference between puts and calls.
   • Call options give buyers the right to buy a set amount of an underlying instrument (usually 100 shares per contract) at a specified price (the strike price) within a set time (prior to expiration).
   • Put options give buyers the right to sell a set amount of an underlying instrument (usually 100 shares per contract) at a specified price (the strike price) within a set time (prior to expiration).

Tips

• == Tips ==

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