Penny Stock Options
Although the term "Penny Stocks" might have a negative connotation to many people, penny stocks and related options provide interesting revenue opportunities if you are knowledgeable about them. Penny Stocks are stocks that trade below a set dollar amount or that are traded on minor markets. Stock options are simply the contracts that provide the option to buy or sell a stock until a certain specified date.
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History of Penny Stock Options
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Penny stocks originated when unethical stockbrokers sold shares of poor quality penny stocks to investors who later realized that these securities were worthless. After 1933, the Federal Reserve was established as a last resort lender to protect the bank from investors who wanted to cash in the speculative stocks. This protection enabled banks to continue to offer speculative penny stocks to investors.
The concept of options originated as far back as the seventh century BCE when Thales of Miletus speculated on quality of the year's olive harvest. In the United States, trading of options began when the Chicago Board Options Exchange was opened in 1973.
Theory
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The basic theory of making money with penny stock options is that you buy a low-priced penny stock, and then purchase the option of buying or selling the penny stock at a set price by a set date. By buying penny stocks, the overall risk is reduced.
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Advantages of Trading Penny Stock Options
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One advantage of trading penny stock options is that it does not require a stockbroker. In addition, penny stock options can be conveniently traded from home using the Internet and a computer. A third advantage is that penny stocks can be traded 24 hours a day, seven days a week.
Disadvantages of Trading Penny Stock Options
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When it comes to trading options, the price is higher percentage-wise than trading stocks that don't have options. Penny stock option trading is also more complex than simply trading stocks. In addition, if options are traded and not executed, the option value becomes useless. Another disadvantage of penny stock options is that penny stock companies are not regulated by the U.S. Securities and Exchange Commission.
Warning
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When it comes to trading penny stock options, you need to be careful that you are not deceived by false information and inflated activity. Unethical activities, when it comes to penny stock options, include one individual buying a large amount of penny stock in one security, spreading false rumors that the stock is good, and then dumping the stock, costing those who bought it on the rumor a great deal of money. This is called a "pump and dump" scam, according to Timothy Sykes.
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