This article discusses what stock option and technical analysis is, and how it can contribute to a successful stock investment portfolio.
Learning about stock options and technical analysis is important if one wants to start trading. The two stockjargons are commonly used in stock trading and this article would help one learn more about it and why it is important.
What Are Stock Options?
Stock options, simple put, are privileges, which are sold to a particular party. This gives the buyer the right to buy or sell certain stocks at a price agreed by both parties. The buyer can exercise this right at a designated time in the future or upon the specified date that both parties have agreed upon. Note that the buyer is not obligated to buy or sell the stocks. As there is a prescription or expiration date set for stock options, there is a possibility that all the capital invested in the shares will be loss.
Traders who want to take advantage of a possible increase in stocks of a particular company can use call options. Call options give the investor the right to buy a particular stock at a certain value should the stocks increase its price in the future. A put option on the other hand gives the investor the right to sell particular stocks they own at a certain fixed or specified price when they believe that the market price for the particular stocks will drop in the future.
There are two option styles used in trading – American and European option style. The American style involves exercising the options at any time before expiration date whereas in the European style, the option is only exercised on the specified date only. The stock market more often than not practices the American style option in stock trading.
What Is Technical Analysis?
For investors who are interested in maximizing their earnings and have a healthy appetite for risk, technical analysis is a proven method. The technical analyst studies the movement of past prices of company stocks, volume dataand other details to determine which stocks would earn the most cash profit. Take note that the investor is not interested in savings but stresses profits.
Most technical analysts are concerned only with two things – the current price and the history of the price movement. Using these data, the analyst can determine or forecast the future price of the stocks. More often than not, the analyst would check out major indices such as the NYSE or NASDAQ, sectors and individuals stocks to determine which stocks would earn more. Other ways to check out the price or pattern of stocks include the use of chart patterns, technical indicators and oscillators. Some analysts would only use one style while others use a combination of both.
The technical analyst’s strength lies in its ease of use, using available data to glean possible prospects and check out support and resistance level in the market. Although the method is criticized for its openness to biases, the technical analysis…