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Step 1
Trading stock options is not for the beginner investor. A well rounded investor should be able trade stock options relatively easy.
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Step 2
Options are basically the right to buy or sell the underlying security at a fixed price on or before a specified date. WHen dealing with stock options, you basically have three options you can do. You can excercise the option by buying or selling the security, trade options, or use them to hedge against a loss.
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Step 3
To exercise the option, you either buy or sell the security before the specified date. If you feel that a stock price is ready to rise but you are afraid that it might fall if it doesn't, you could buy a call option to buy the stock at a cheaper price if it does rise. If it doesn't, you can simply let the option expire.
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Step 4
You can also simply trade options. The underlying security price affects the option's price directly. Many investors simply trade the options and never the underlying security.
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Step 5
You can also use options as a hedge against a loss. If you purchased a security and want to hedge against a loss, you can purchase a put to sell the security at the current market price when you bought the put. If the stock continues to rise, you can simply let the put expire.
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Step 6
Stock options can be complicated and can cost an un-educated investor a lot of money. Make sure that you have a firm grasp of the market before trading stock options.
