There are many investors who fear and stay clear of options. Some investors are not even aware of it. Well, options are something that investors should not overlook or avoid. In fact, every investor should learn about what options are because they are something that often proves to be profitable. Options help hedge portfolio and, not to forget, reduce the risk.
By definition, an option is a derivative product, a contract, that gives the buyer (the one who purchases that particular option) the right to buy or sell the shares (the shares of which the option is comprised) at a preset price, on or before a preset date. Bear in mind that the option buyer has the right to buy or sell the shares, but he or she is not under any obligation to do so. If the buyer does not exercise the option, the option expires worthless. Anyway, by writing options (selling options), the investors (option sellers) get instant returns in the form of option premiums.
There are over 26 options trading strategies that allow investors to generate wealth in rising, declining and even flat market conditions. So why would investors want to stay away from options trading? Besides, by trading options, investors also create an extra stream of income. How? Investors already own the shares despite writing an option against them. Therefore, any upcoming premium on those shares is solely theirs, unless if the option is exercised. If the option is exercised, the investors have to give away the shares. However, this does not happen very often. A carefully written option contract in most cases expires worthless; hence, there are very little chances for investors ending up on a losing side.
It is not a daunting task to begin with option trading, especially here in Australia. If you are new to the world of trading, the first thing you will need to do is open a trading account with one of the many brokerage firms. Only through brokerage firms, you will be able to trade options in Australia.
When you open an account with a brokerage firm of your choice for trading ASX options, you will have two choices: opening a cash account or opening a margin account. With a cash account, you can only use the amount of funds available in your account for buying options. Where else a marginal account allows you to borrow funds from the brokerage firm to finance further purchases of options.
Whether you decide to open a cash account or a margin account, you will be required to deposit a certain amount of money in your trading account. For a cash account, little or no cash is required; however, for a margin account, a certain amount of deposit is required.
That is it, once you open your account with the brokerage firm, you can start with the options trading in Australia. If you have no idea about options trading in Australia, then fortunately, there are some good ASX options advisers, like the ones at Total Options (http://totaloptions.com.au), who can give excellent trading advises as well as teach you how options trading in Australia works.
If you are looking for a smart way to invest your money, then considering options might certainly be an excellent idea. You can build wealth in any market conditions by trading options.