Friday, January 24, 2020

How Options Trading Can Supplement Your Retirement Savings Plan



Image via Flickr by Got Credit


What is Options Trading?


Options are contracts to purchase shares. Typically one options contract is good for 100 shares. When you purchase an option, you are buying the right to buy or sell shares of stock at a set price. When planned well, this can bring a high return on investment.

You have two types of options contracts, a call, and a put option. Call options are buying you the right to purchase shares at a set price. So if you are watching a stock and feel the value is bound to go up, you would purchase a call option, when that stock increases in value, you have the right to buy 100 shares of that stock, and sell it off at the market value.

Your second option contract is a put option. This is a contract granting you the right to sell for a set strike price. So if a stock decreases in value, you will still get the set strike price for your shares.


Why Are Options A Good Choice for My Retirement Plan?


Options are an excellent way to diversify your portfolio. By adding options to your retirement plan, you have another source of investments to pull from, and a bit of extra security when another investment is stuck in a low streak. When you're investing, its good practice to keep your money spread out. You never want to put all your money all in one basket. Choosing options and learning a strategy can add a sizeable amount of income to your savings and monthly budget when planned well.



The good thing about trading options is that they tend to be a predictable risk. Options are a safe alternative to diving into buying a stock outright. If you are unsure but have a good feeling, you can invest in options, and if your prediction goes the wrong way, you only lose out on what you paid for the options contract. This will be considerably less money than if you were to purchase 100 shares and take a hit.


How to Trade Options


The first part of options trading is identifying the top stocks for options trading. When you do this, you will get a better plan of how to go about your investments. With any type of financial trading, it is essential to do your research. Talk to your broker about adding options to your portfolio.

So if you are looking for more ways to supplement your retirement plan, options trading can be the extra income you are looking for.




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