May 21, by m slabinski. The first thing that used to come to my mind was buying stock. People are usually familiar with the idea of buying stock to invest in companies they like.
On the surface, it is really simple:. The cool thing about trading options is that it allows us to theoretically control shares of stock for a limited time, for a lot less capital. Additionally, there is an opportunity to make money if the stock price stays the same or goes down! There are a lot of additional variables with options, which means we can take that extra information and create customized strategies.
Learning the concepts and theories of stock options will amplify your knowledge of everything going on around you. If you want to look at buying stocks or options as making a purchase and hoping it increases in value, you can, but you are missing out on a lot of useful information that is right at your fingertips that is, if your fingertips happen to be on your keyboard on dough.
We are going to look at buying stock using the same terms as when we discuss options trading. Understanding option concepts will help you become a more knowledgeable trader. Risk is characterized one of two ways: Typically, undefined risk trades involve naked options. Owning shares of stock has similar risk to being short a naked put. For stock, the max loss is the current share price multiplied by the number of shares you own. Owning shares of stock carries more downside risk compared to an at the money or out of the money put.
If you wanted, you could say that stock has undefined risk just like a naked at the money put. The tools and information at dough help you analyze your positions so you can better understand the trades you are placing. Buying stock has a fifty percent chance of being profitable. When trading options, we can choose whatever strike prices we want. Using implied volatility , we can calculate the probability of a trade being profitable dough does this for you! Choosing options with further out of the money strike prices will increase our probability of profit.
Using different option strategies, we can choose how high we want our probability of profit to be and the direction of our risk. Analyzing your investments can be as complicated or as simple as you want to make it.
Tweet us what you think doughtrading or write a comment below! In part 3 of our liquidity series we go over strike price volume. The stock might be liquid, but is the strike price of the option you are trading? This week she is talking about IV Rank, see what questions the support desk gets the most! In part 2 of our liquidity series, we go over examining stock volume in dough. Beginner intermediate Blog Sign Up Login. How They're Similar and Different Part 1. On the surface, it is really simple: The reality is buying stock is very similar and just as simple as buying options.
Risks of Trading Stock Risk is characterized one of two ways: Undefined risk trades are trades where your maximum potential loss is unknown at order entry. Strike Price Volume Liquidity Part 3. Jul 2, beginner iv rank , implied volatility , high implied volatility , education , Tracy Algeo Tracy Algeo Comment. Stock Volume Liquidity Part 2.More...