The Stock Market, and Options Trading as Explained Through Twitter

Stock option strategies

According to the New York Times, stock market investors are waiting to see what the federal government, and notably, the new Federal Reserve chairwoman, Janet Yellen, has to say about the planned tapering of the stimulus program.

Current Hopes for Yellen
Many are hoping that Yellen will fall in the middle, recognizing that the economy’s recovery is in a fragile state but not making any changes to the government’s plans. Were the government to stop the tapering, it could be seen as an indication that the market isn’t strong enough to stand on its own yet — this would cause stock values to drop.

How Inflation Affects the Stock Market
Most financial experts recommend investing in the stock market. Every year, inflation occurs at a rate of about 2% to 3% in the U.S., and this is something the government encourages. Why? If deflation were to occur, the economy would spiral downward: people would hold on to their money instead of spending it on good and services, with the expectation that it would be worth more later. What this means for your money, though, is that it is worth less and less with each passing year.

On average, consistent long-term stock market investment will net you 10% gains on your investment, more than accounting for the consequences of inflation. Many people have heard that the options trading system is a good way to make larger amounts of money, with gains often exceeding the 10% long-term average. Is this true?

Options Trading
While it is certainly possible to trade on the options stock market, it should be approached with great caution by beginning investors. Although options are a more versatile investment, as Investopedia points out, “This versatility… does not come without its costs. Options are complex securities and can be extremely risky. ”

The basic concept behind options is that you are betting on future values, whether they be gains or losses. Take, for example, Twitter Inc’s huge drop on Thursday. This drop meant that many options traders made a 200% profit in a single day. How?

The options trading system involves placing down money for the “option” of selling stocks at a certain price, on a later date. In this example, Twitter investors bought up the option to sell the stock at a price higher than what the stock fell to. They were then able to pocket much of the difference when Twitter dropped 20%, more than most industry insiders had predicted. Anyone who had bought the option to buy Twitter at a higher price, on the other hand, which would have been beneficial had the stock prices risen, would not have been obligated to purchase it at an inflated price, but they would have lost the premium they paid for the option, which is typically several dollars per share.
Are you interested in the options trading system? Let us know in the comments. For more information see this.

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