Hold on a minute though.
You’re probably wondering things like “What’s options trading” or “What is option buying power?”
If you’re looking for an entry point into the world of options trading or want to see if it is a viable option for you, then you’re at the right place. You can use the best options scanner apps to figure out profitable trades and make this into a full-time career.
But for now, let’s explore the basics!
What Does Trading Options Mean and How Does It Work?
Before we go on and explore trading with options, let’s understand whats an options trader is and what are options. Options let you trade (buy or sell) stocks and underlying assets at a given strike price. This is the price (of the stock) you agree to when you first acquire an option.
The idea behind trading an option is to benefit from market volatility — buy for less, sell for more. Of course, in such a volatile and unpredictable market, the opposite is also equally possible.
The major difference between stock vs options is that the latter are much more volatile and thus attract experienced traders.
For now, you need to know that trading options benefit you if you can correctly predict future price trends for the underlying asset.
Stock vs. Options: Understanding the Differences and Benefits
If you look at some examples of TradingView options, you’ll see very clearly how options work. But how does it differ from trading stocks? In other words, why don’t we just trade the underlying stocks instead of buying options?
Well, there are several reasons for that.
When you acquire a call (buy) or put (sell) option, you do so only when you agree on a given “strike” price. This is the price at which the underlying stock will trade when you execute the option.
Of course, if the stock’s intrinsic value varies in your favor, you can make a juicy profit.
Let’s say that you acquire a call option for a strike price and by the time the option is executed, the stock’s intrinsic value is higher than that strike price. This means that the difference in prices is your profit.
The opposite also applies to a put option.
Trading options is not the same as trading a stock directly.
For instance, if you acquire an out of the money put option, (meaning that the price of the underlying stock crosses the strike price), you don’t lose money immediately. You would’ve suffered a big loss if you were trading with stocks directly.
Stock buying options and trading plays on market volatility — if you were to trade stocks directly, the volatility factor is lesser. This makes any profits and losses mostly minor, however, in the case of options, the two can be major.
You are also not obliged to exercise an option if it does not favor you — you’ll still lose money but not as much as you would’ve otherwise.
We could go on about the differences between stock and options trading, but this, hopefully, covers it!
Exploring the Best Options Scanner Tools for Trading Success
To get the best out of every trade and maximize your winnings, you need to pick your options wisely. Price predictions are not speculative. They should be based on pure mathematical data, and this is what an optionstrading scanner can help you with.
If you’re trading stocks and options, you should be able to figure out where the price and volume are headed based on accurate data. Gladly, in today’s age and time, you no longer need to dash for your calculator or just simply “guess” what’s going to happen next.
Instead, you can use strong toolkits that include indicators, scanners, and graph tools to let you make informed decisions.
Some of the most capable toolkits with scanners (to help you pick the best options for trading) are as follows:
Now that you understand “What does trading options mean” and have a basic understanding of the tools involved, let’s move on to option expiration.
Understanding Option Expiration: What Time Does an Option Expire?
Wondering at what time does option expire? Well, it’s 4:30 p.m. CT (central time) on the expiration date. All call-and-put options come with an expiration date — this is how long you have to exercise them.
As the expiration date draws nearer, the options begin losing their value. This is because there is a smaller timeframe to execute them and the hopes of things turning around are also low.
So, if you’re wondering when to buy a put option (or a call option for that matter), just do so when there is enough time for the market volatility to favor you.
Avoid buying options when they’re close to expiring.
You should also use the best option flow scanner to judge the future performance trends of an option before finalizing your decision.
Mastering the Art of Buying Put Options for Profit and Protection
Options trading does not only have to be an exercise to profit from market volatility, it is also an effective risk management technique. This is how most traders are introduced to the concept of “what does it mean to trade options?”
For instance, you can use a protective put option to counter any loss if your stock assets suddenly lose value.
The opposite is also true for call options. If you can figure out how the best options traders make their trade decisions and what impacts their decisions, you’ll gain a great deal from it.
Now that you know how things work in general, learn how to spot the best stock options to day trade and get started with your trading exercises!