Investing In The Stock Market For Beginners

 Upon the passing of the option’s expiration date, the time value of the option is lost.  This is why a strategy is indispensable when trading option so that you can avoid if not minimize the loss and maximize the profit. The two most basic strategies in option trading are bullish call spread and bearish put spread.  Bullish call spread is simply used when the stock price is expected to be in an upward trend in the next few months. Bearish put spread is used when the stock price is expected to drop in the next few months.  The steps involved in this strategy are buying in the money option and selling out of the money option.  In the money option has time value as well as intrinsic or actual value while out of the money option has time value only.  Upon movement of the stock price to the positive side, also known as ‘generated money side’, in the money option shall generate profit and the out of the money option shall generate losses. When you deduct the loss from the profit, the result is the net profit generated from the strategy.  When the stock price moves over to the out of the money stock price, the profit will be maximized because constant movement of the stock price to the positive side will not generate any profit. When this situation is reached, we will close both positions to take the profit out of the market. When the stock price moves to the negative side (opposite side that causes losses), the value of in the money option will be less while out of the money option will generate profit.

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