Trading Options Using Puts And Leaps

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Trading options allow you to actually make money during periods of market decline. That is the good thing about them. Individual investors are usually aware of the benefits of short selling and this procedure seems almost mythically advantageous to many people. Shorting is vital to the life of the stock market because investors who use this technique give the market a lot of liquidity.

As most investors appreciate, stocks and the stock markets rise, and they fall. There is no getting around that. But fear, being a stronger force than greed, means the fall is usually faster than the rise. Lucky for us, stock options trading allows you to leverage these falls by purchasing put options.

A put option means you can make somebody else buy a stock or security at a set price in the future. There is a specified "life span" to put options, and just like call options, they either expire or the buyer uses the contract prior to the expiration date. Put options are usually chosen by investors that like going short but desire greater leverage or don't want to borrow the stock.

What's so important about trading options and providing deal is that short positions pay off faster with great wins than compared with long positions. Investors can arrange stocks in different ways including outright arranging of a stock, buying puts, buying Long Term Equity Anticipation Securities, or LEAPS. If any one learns about option trading then he or she comes to know that LEAPS are options that do not expire at least for a year.

With the use of put options and LEAPS, shorting stocks has become extremely simple for thousands of stocks. The list of stocks that this applies to is growing constantly, and trading options offer more alternatives that ever before. Shorting stocks used to mean buying on margin, tying up capital, and living with constant anxiety. But those days are now in the past with the use of put options.

When trading options either for the short or long term, investors can short an entire index, a market segment like oil or transportation, or an individual firm. Shorting via puts is an excellent strategy for profiting from bad news. If you are only holding long positions, when bad news strikes, the only thing you can do is sell your position or sit back and take it. That's not the case if you go short with put options.