Investing In The Stock Market For Beginners

It then follows that you will earn about ten times more if you buy option instead of share or future. The downside is, when you are trading options, you can lose about ten times as well. The upside is, when we trade option, the amount of money that we can make or lose is almost the same as when we trade share.

 Still, a lot more money is needed to buying a share as compared to buying an option.  To further elaborate, when you buy one unit of option for $1, you will need $10 to buy one unit of share. When the price of share drops by $.10 which is equivalent to .01%, this translates to a 1% drop in the price of option. This is why the percentage for profit and loss in buying option is much higher compared to buying shares. The impact of a small fluctuation in the price of share is magnified by ten times when you buy option as per our example above. Buying option, trading or investing in option is rather similar to gambling because of the extra high profit or loss involved.  Yet, it is also rather normal that you can loose all your money in any investment or trading.  For you to earn more rather than loose, some basic option trading strategy and technical analysis should be learned. Option is a different animal than a share.  Option has time value but share do not.  In the passage of time, the value of one share will not depreciate.  Aside from the performance of the company, it is only impacted by the supply and demand for it. On the other hand, option can depreciate in relation to time.

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