Stock Trading - Fool Proof Stock Trading
February 13th, 2008 by admin
The stock market can be a rough place to try to make money. Believe me, been there and done that. It’s rough if you don’t know what you are doing. The prices seem to rise and fall at random. You can’t predict what’s going to happen, and your emotions are consistently getting the best of you. Well, after plenty of searching, I’ve found what could be called the fool proof way to trade stocks. It’s worked for me and many other less-than-genius trading.
First, you need a basic understanding of options. Let’s say that stock ABC is trading at $30. A call option gives you the right (but not the obligation to buy stock at a certain price for a given amount of time).
The way you know what price you have the right to buy the stock at is the strike price. If the strike price is the same or very near the stock’s actual price then the option is called “at-the-money”. If it’s way under the stock’s price the option is called, “in-the-money”. “Out-of-the-money” is with the strike price way above the stock’s actual price.
Out-of-the-money options are cheap. In-the-money options are expensive.
The fool proof way is to sell in-the-money calls against stable stocks. The money you get from the sale of an in-the-money option gives you good downside protection to the fall of the price of the stock.
If an option with the strike of 25 is selling for $6, then you can let the price fall all the way to $24 before you’re in trouble. $30 - $6 (from the sale of the option) = $24. And you’ll make $1 per contract. Strike of $25 + $6 (option premium) - $30 (the stock price) = $1 of profit for you per contract.
Do you want to learn more about how I do it? I have just recorded a 25 minute CD called “How To Pick Winning Stocks - The Secret Formula”
Request your free copy here: Click here for your free CD.
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