Etrade options trading tutorial

What level of risk can you handle? How do you set up a brokerage account? Why invest in stocks? The buy order you place will be directed to the appropriate stock exchange. This is known as a margin call and can potentially require the payment of a sizable amount of money. Normally, stock is purchased through a brokerage account. Each share of stock represents a proportional share of ownership in the company. As a stockholder, you share in a portion of any profits and growth of the company. Their low price appeals to investors willing to assume a total loss of money in exchange for the potential of explosive growth.

But they are the exception rather than the rule. Some stock investors have made money quickly. Understanding these factors can help you make sound investment decisions and keep losses to a minimum. Can you lose money? Never allow your broker or agent to mail statements and transaction confirmations to someone other than you. Due to some problem that may be only temporary in nature, investors are ignoring these stocks. There are no assurances that a stock will increase in value. Do not give discretionary power to your broker or agent without seriously considering if it is right for you.

Correspondingly, though, stocks are generally considered to have more volatility than bonds or cash equivalents. How will you pay for the stock? It is usually best to diversify among the different classifications and not own stock in just one or two companies or industries. When someone who owns the stock is willing to sell at the price you are willing to pay, the sale takes place. Review these as soon as you receive them. Company executives work for the shareholders, who are represented by an elected board of directors.

Stock ownership also generally gives you the right to vote on management issues. Discretionary power allows a broker or agent to make decisions based on what he or she believes is best for you. After the IPO, the stock may trade on a stock exchange or over the counter. Never sign a document without reading and fully understanding it. You will be asked to specify your investment goals in terms of risk. Penny stocks are very risky speculative stocks issued by companies with short or erratic performance histories. Any investment your broker or agent recommends should be based on the category of risk you selected.

With education, good judgment, common sense, and above all, patience, you can be successful. Securities that you own are held as collateral, and interest is charged on the loan. Read books, attend seminars, and take advantage of professional advice. They also generally pay dividends. How are stocks bought and sold? Businesses sell shares of stock to investors as a way to raise money to finance expansion, pay off debt, and provide operating capital.

Dividends from earnings are paid to shareholders, and growth is realized by the increase in value of the stock. Stock certificates may be transferred from one owner to another since they are negotiable instruments. What are the different classifications of stocks? Growth stocks are the most volatile class of stock, however, and are just as likely to go down in price. Although past performance is no guarantee of future results, stocks have historically provided a higher average annual rate of return than other investments, including bonds and cash equivalents. The main reason that investors buy stock is for capital appreciation and growth. Since it can take quite some time for their true value to be reflected by their price, value stocks are usually purchased for the long term. Choices such as income, growth, or aggressive growth may be given.

Income stocks are generally not expected to appreciate greatly in share price, but consistently pay steady dividends. Value stocks are those of companies with good earnings and growth potential that are currently selling at a low price relative to their intrinsic value. Who will make the investment decisions? Discuss any discrepancies you find with your broker or agent at once, and follow up on any actions taken until you are satisfied. Investment bankers or brokerage houses buy large quantities of the stock from the company and sell them to investors. Make sure you understand the meaning of each term, and be certain that the level of risk you choose truly reflects your ability to handle risk.

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Maybe you will find a stock option that expires 2 months later, but only costs a few dollars more. This rule was also covered in the strike price lesson. This begins Step 4: The Stock Option Chain. Duration The next step is to figure out how long you plan on staying in the trade. Ask The Ask price is the price that a seller is willing to accept for that particular stock option. December 25 call option.

These are contracts that have not been exercised, closed, or expired. The more people trading the stock option, the easier it will be to buy and sell the option. If you want to give the trade 2 months to work out, then you look for options that are going to expire 3 months out. This ensures that there are enough people trading the option to make it worth your time. This will be the actual cost of the contract. Aug 09, Sep 09, Dec 09, etc. The symbol identifies 4 things: which stock this option belongs to, what the strike price is, what month it expires in, and if it is a call or a put option. Well the confusing part comes when you actually pull up a stock option chain. For our example we are looking at all the call and put options that expire the 3rd week of December 2009.

This column lists the total number of option contracts still outstanding. Bid The Bid price is the price that a buyer is willing to pay for that particular stock option. ATM option, then you can look for a closer expiration month or move on and find a trade on a stock where you can afford the stock options. Comparison Shopping Here you simply look for the best value. If you go to Yahoo, MSN, CBOE, or your brokerage account and pull up an option quote, you will notice that the layout of each of their option chains is completely different. This rule is simple. Calls Options and Put Options Each stock option chain will list out all the call options and all the put options for the particular stock.

Check out the price of stock options for other expiration months and see if you can find a good deal. In one of the previous lessons you performed stock trend analysis to find trades. Be aware that this transaction could have been minutes, days, or weeks ago, and may not reflect the current market price. Also keep in mind that you have to multiply the cost by 100. If your analysis tells you that the stock is going to rise higher, you evaluate the Call option portion of the option chain. The higher the open interest, the easier it will be to buy or sell the stock option because it means a great deal of traders are trading this stock option. They all essentially have the same information displayed, but look completely different. How to Read a Stock Option Chain. Open Interest Only buy stock options with an open interest of 100 or higher.

Some traders want to stay in a trade 1 week, some want to stay in a trade 2 months, so your trading plan will dictate which month you look at. Learning how to read an option chain is a vital component to options trading. Strike The first column lists all of the different strike prices of the stock that you can trade. When you are selling an option contract, this is usually the price you will receive for the stock option. The fourth column lists the change in the options price. So What is a Stock Option Chain? Call option or the Put option portion of the option chain. Ask price you see has to be multiplied by 100.

BE CAREFUL: remember one stock option contract controls 100 shares of stock. List how many stock option contracts were traded throughout the day. Why 3 months out? And vice versa for Put options.