How to Use Options to Beat the Market

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A call option gives you the right, but not the obligation, to buy shares for less money than it costs to buy the stock. 

Many investors prefer selling puts and calls to generate income — a subject we will explore in the next part of this series.

Speculation 

In fact, as you understand the advantages and disadvantages of options, you'll appreciate how you can use options in conjunction with stocks. Although most investors' primary goal is to earn profits, one constructive way of using options is .

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Opening an options trading account 

For short sellers, call options can be used in a similar way to restrict losses during a short squeeze, or in case of an incorrect short bet. (See also: Bill Ackman's Greatest Hits and Misses.) Spreading. Spreading is the use of two or more options positions. In effect, it combines having a market opinion (speculation) with limiting losses (hedging).

The key is discovering how to use options the right way. Here’s some basic information about options: Option buyers are also known as holders, and option sellers are known as writers. Call options give the owner the right, not the obligation, to buy an underlying asset at a specified price within a specified time frame. All options have expiration dates. After a certain date, the contract ceases to exist. This means you have to be right on a stock’s price movement within a certain period of time to profit from an option. There are two types of options. A call option gives investors the right to buy a stock at a certain price and time. 

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Options Trading 101

How to Trade Options Trading options requires three strategic choices: deciding which direction you think a stock will move, how high or low the price will go and during what time frame it will all take place. Options and other derivative securities have made fortunes and ruined them. Options are sharp tools, and you need to know how to use them without abusing them. Stock options give you the right, but not the obligation, to buy or sell shares at a set dollar amount — the "strike price" — before a specific expiration date.

In fact, as you understand the advantages and disadvantages of options, you'll appreciate how you can use options in conjunction with stocks. Although most investors' primary goal is to earn profits, one constructive way of using options is . Muting options for words and hashtags. You might see content in Tweets you’d like to avoid. We give you the option to mute Tweets that contain particular words, phrases, usernames, emojis, or hashtags.

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