Many investors may feel uneasy when it comes to trading options. This is usually down to a lack of knowledge. Many investors trading stocks shy away from options because they find it a complicated concept. Trading options contracts will give the investor flexibility to place bets on specific market outcomes. Very simply, you make a bet that the price of a particular security will be higher than a certain price or it will be lower than a certain price in four months time. If the stock pick has not done as you predicted and only traded between the prices, you will lose your bet. However, if the stock did perform as you predicted, you will win.
There are a couple of reasons why investors look towards trading options. The first is speculation. This is where an investor predicts the future price movement of a security in a specified time frame. The advantage of options is that you can make money whether the price moves up or down on the stock market. However, you need to be very accurate in your predictions and forecast. In other words, you would need to keep in mind whether the price will move up or down, how much the price movement will be, and when this will take place. This makes the odds against you are very high. The reason it is attractive to some investors is because of the leverage they use, since one contract may have hundreds or thousands of shares, it will need just a small price movement to make large profits.