The stock market is a fast-paced and nuanced financial engine. This makes it both attractive and intimidating as a source of success. Many are unwilling or unable to dive into it as a primary means of employment. More people are finding that it is an excellent way to start a second source of income.
The most common use of the stock market for developing a second income stream is options trading. Developing an income from trading options is considered one of the easier ways to break into the stock market as an outsider. There are several solid reasons for this.
Options are contracts that enable the owner to make certain trades on the stock market at a given price or under particular conditions within a limited timeframe. They do not constitute an obligation to make a purchase. They do constitute an obligation for one party to make a sale if the owner of the option chooses to exercise it. The simplest use of options trading for income is to purchase an option that allows one to purchase stock at a low price. If the price of the stock goes up before the option expires it allows the option holder to make a purchase at the lower price. This constitutes an effective profit for the option holder.
Options trading is considered accessible because this “high-low” paradigm is relatively easy to grasp. It also runs on very simple terminology. An option that allows an owner to buy something at a given price is called a “put” option. An option that allows an owner to sell something at a given price is called a “call” option. The price associated with purchasing the option is called a “premium.” The price associated with the option’s exercise for buying or selling is called the “strike price.” Understanding these basic terms makes it possible for newcomers to understand literature associated with options trading which makes pursuing education about it a much more palatable task.
None of this is to say that options trading is simple, but it is much easier to scratch the surface…