However, trading stock options can be a great way to leverage your investment. For a small fee, with a defined risk, you can control a large amount of stock. The primary thing to remember, options are a wasting asset. When expiration Friday arrives, the option expires. If the option is in the money, you can either use it purchase the stock or redeem the option for the premium value. If the option expires out of the money, you have lost your investment.

Most people try to guess which direction the market is going to move, will it go up or will it go down. If they guess wrong, they lose money. More people trade with call options instead of put options, because they understand going long on the market but do not understand going short.

The vast majority of traders do not utilize trading strategies such as straddles or strangles, much less condors or butterflies. As a result, they are taking on a lot more risk, with less chance of making a profit.

If the beginning trader would take the time to learn some of the various trading strategies, they would greatly decrease their risk and improve the odds of having winning trades tremendously.

Learning the complex option trading strategies is not that hard. First you learn about the simple puts and calls options. When you understand the basic building blocks, you move on to combining the various strike prices and expiration dates. Even the most complex stock option trading strategy is made up of simple puts and calls.

These strategies will reduce the risk to a much lower level. The down side to these trades is you lower the return on the trade. But if the trade goes bad, the strategy will minimize your loss. If you still have money, you can still keep trading. If you lose all of your capital, you are out of the game.

So the people that say day trading stock options is risky are correct. But if you take these simple steps, then you can lower the risk, and still maintain the leverage that trading options will provide.

One powerful technique that can be used in tandem for the increased possibility of success is the use of stock options and trading with Japanese candlestick charts. Stock options lend themselves naturally to the swing trading style of investing. Swing trading simply means buying a stock or option and holding the position for anywhere from a few days to a couple of weeks or possibly a month or two. Swing trading options is not a long term investment strategy since options have expiration dates.

Japanese candlestick charts have been used since the eighteenth century by rice traders to predict rice prices with great success. Candlestick charts have become the most popular type of chart incorporated by traders into the financial markets, used widely in many different trading systems. Once a trader learns the basics and concepts of candlestick charts, the trader can use them to easily identify possible options trade candidates.

Support and resistance areas are very important to the options trader. Stocks follow patterns and usually trade within a wide range between established points of both support and resistance. Because stocks trade within established patterns, options traders have opportunities to capitalize on the movements between these areas of established support and resistance.

Using candlestick charts, a options trader can easily identify these important areas of support and resistance and quickly determine if individual stocks are suitable for an options trade. For example, if a stock recently fell to a strong support level, this could indicate to the options trader by utilizing the candlestick chart that a winning trade may be a possibility. However, the possibility of a winning trade is not guaranteed. A strong support area revealed by the candlestick chart only shows the options trader that the stock has visited this area of support before and has often bounced off the level rather than proceeding downward through the support level. Although chances are excellent that the stock will bounce and reverse direction at strong support, there is no guarantee that the stock will return to previous levels once the stock touches the strong support level.

Using stock options and trading with Japanese candlestick charts can help the options trader identify possible setups for profitable trades and help improve winning ratios. Candlestick charts have been used for centuries and are an important part of many trading systems among not only options traders, but day traders and forex traders as well.

Only being aware of what you think about the option is not enough, it is prudent to know what others think about the option also. You should talk to people who trade in stock options, read books on that topic and do everything possible to keep your self abreast of all that is related to stock options. Doing this should fairly give you an idea of trading in stock option, to get some practical experience; you could also try “trading on paper”

There is no ground rule to choose the winner stock, you have to do an extensive research on your prospective company and then decide whether it is worth while to invest.

The basic things that you ought to check in the company are; 1. Company’s track record; it is important that you look at the performance of the company in the past few years. 2. Check the price of its stock and its volatility; more often than not after a technical analysis of the stock price you will be able to speculate its price movement. 3. Keep an eye on any current news such as stock split, mergers or accusations or any other investment that the company may be going in to.

In option trading, you can make money either ways. If you expect the stock price to rise, you should buy a call option. A call option is a right that the option holder enjoys, to buy the stocks of the specified company at a specified price. This specified price is called the exercise price. Now, if you buy a call option you will gain if the stock price rises, because you have the right to buy the stock at the exercise price at the expiration of the option. This way you can acquire the stock at a lower cost and sell it in the open market at the market price, there by booking profit. You can also sell the call option if you are expecting the stock price to fall. In this case there is one catch; you are exposed to unlimited loss and limited gain. Your gain is the premium amount that will be paid to you by the buyer of the option, on the other hand if the stock prices rises instead of falling then you will have to buy the stock at a higher price from the market and sell it at the lower exercise price, to the buyer of the call option. This is a naked or an uncovered call option. You can hedge yourself by purchasing a call option with a lower exercise price and a longer maturity. Similarly when you buy a put you are expecting the price to fall and when you sell a put you are expecting the prices to rise.

If you trade correctly and maintain the right balance of risks you can surely emerge a winner in stock option trading.