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Discover How Stock Traders Make Money With Options

There are several ways a trader can go about making money. The most traditional approach to trading involves buying low and selling high. This method is typically called day trading. In day trading you make money by buying low and selling high. The logic is that once you take a cheap stock that is then quickly bought out it will result in a stock that is considerably more expensive than before you took it. Your goal is to build a portfolio over time that is then over represented in the price of the stocks you buy and sell. The idea is that you make your profits by exploiting price movements.

Another way traders make money is by shorting stocks. In shorting you assume that prices are going to continue to rise which would result in the stocks you buy rising in value. Short sellers then sell a stock that they don't own in order to take advantage of an impending decline in its price. In this method you use borrowed money to buy stocks in the hopes that their prices will decline. The goal is to get rid of the borrowed money's stocks at a lower price than they bought them for.

A third way to make money is through options trading. This is one of the newer methods and it's growth is largely due to the Wall Street traders who are innovating ways around the traditional methods. Options are contracts that give the buyer the right to buy or sell a specific amount of stock at a specific price. In this case the buyer would be the trader buying the contract giving them the power to buy a stock at a set price and deliver a set amount of income. It's still a two way street and the seller needs money in their account to exercise the right to sell the contract.

In option trading the price of the stock you buy determines how much money you make. If the price of the stock rises then your profit is made at the seller's expense.

In another scenario you may wish to sell shares. The right to sell is priced at an incredible premium to the shares value. This works best for traders that hold lots of stock and want to maximize their income from the market. However, it also works against you if the market begins to plunge and there is a glut of stocks. If there is an economic event that reduces stock prices, you stand to lose a great deal of money. In this case you need to exercise the right to sell the lowest price that you can get your broker to sell them.

These are just a few different ways traders make money in stock trading. There are a million ways to make money with stocks and options to explore. The key is to learn how the different options traders approach option trading like a pro.

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