Option investing can make money for experienced traders, but is difficult for amateurs.
Option investing is a little bit different than other types of investments. Instead of trading in an actual object, you will be trading in the opportunity to do something with an object. Whether that is an option to buy or sell or do some other action depends on the type of option you are thinking to invest in. The reason that options can be purchased is that basically the buyer is purchasing an obligation from the seller – it’s essentially a purchased contract. By trading these options away, you are transferring who the obligation is owed to.
Most options that are used in investment give the buyer a choice as to whether or not they would like to purchase a particular type of stock at some point in time in the future (or before that particular date). The person who owns that option can either follow through with the option and buy the stock, or they can trade the option in order to get something that seems more lucrative.
Early on, option investing was very difficult to do and was impossible for anybody who did not have a lot of knowledge about investing, or about the way that other people were likely to price their stock options. However, in 1973, the Black-Scholes pricing model was thought up. This model made it easier to determine what a stock option’s price might be, and therefore made it much easier to price and trade stock options.
While option investing might be a bit easier to do now than it was before 1973, however, it is still not easy, especially if you want to make a lot of money, or make money quickly. Basically, if you are just an amateur trader, or if you are only going to trade in options as a hobby, you should be careful, and limit the amount of money you spend. The reason for this is that there are a lot of factors that still come into play regarding the pricing of options. Unless you have time to follow the pricing of options closely, you stand a good chance of losing money in option investing.
Therefore, before you start investing at all, make sure you are picking the market that is right for you and the amount of time that you have to be involved in investment.