Post by sagasan on Apr 19, 2016 5:15:24 GMT -5
A stock is a trading instrument, but so is a stock option. Using a stock option dramatically lowers your costs. For example a stock is trading at $73.63 and you think it is a good entry after a correction. However you have only $4000 in your trading account so you can't afford to buy even 100 shares because you would need $7363 to put on the trade. Instead you can buy a call option "at the money" contract BinaDroid Review for only $1.43 per share for a total investment on 100 share contract of $143. This means you can trade the stock because the option contract is within your budget, and your risk is now only $143 rather than $3000 based on proper stop loss and buy entry prices. If you have plenty of capital to trade the stock, but when you study the actual entry price based on a professional bracketed order that protects from whipsaws and stocks that reverse suddenly, you find that the proper stop loss placement is far too much risk.
You do not want to take this much risk but you really like the stock and are confident it is going to recover, and move back up based on strong indicators and strengthening fundamentals. To insure that the stock is going to continue to move up, that you are buying into strength and are therefore avoiding the risk of a whipsaw the entry must be at $75.50 and the stop must be at $71.00. That is a 4.50 point risk or $4500 on your intended 1000 share purchase of this stock. Rather than buying the stock for $75.50 x 1000 = $75,500 which ties up a lot of capital that you have to trade and is a high risk trade, you could use an option to leverage into the stock using an option you intend to exercise. This means that for $1430 for 100 contracts, you have lowered your risk for this trade by $3070. This is a huge difference in the risk of buying this stock.
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You do not want to take this much risk but you really like the stock and are confident it is going to recover, and move back up based on strong indicators and strengthening fundamentals. To insure that the stock is going to continue to move up, that you are buying into strength and are therefore avoiding the risk of a whipsaw the entry must be at $75.50 and the stop must be at $71.00. That is a 4.50 point risk or $4500 on your intended 1000 share purchase of this stock. Rather than buying the stock for $75.50 x 1000 = $75,500 which ties up a lot of capital that you have to trade and is a high risk trade, you could use an option to leverage into the stock using an option you intend to exercise. This means that for $1430 for 100 contracts, you have lowered your risk for this trade by $3070. This is a huge difference in the risk of buying this stock.
autobinarysignalssoftwarereviews.com/binadroid-review/