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Options chains are the visual presentation of all the available options for a given underlying stock and a given expiration date. This gives traders a bird's-eye view of their choices when trading options.
And options trading is now more accessible than ever today. We'll get to that in a minute – but first, a little about the options chain.
Also known as an options matrix, it presents options arranged by strike price, along with respective pricing, volume, and often open interest data.
The most important aspect of an options chain is that it allows the trader to zero in on the most active options. It can also help the trader choose the best options for whatever strategy they have in mind.
Most options chain displays have a button or drop-down box to display different expiration dates. Some also have other filters, such as "puts only" or "calls only", as well as choices for in, out, and near the money.
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It shows at a glance the pricing and volume information for call options near the money, or those with strike prices close to the current traded price of the stock. The volume column on the right shows the relative liquidity at each strike price.
Now here's how you can best use options chains to your advantage.
Options Are Not Just for Speculators
No matter what your level of expertise may be, options can enhance your returns and even reduce your portfolio's risk.
For example, if you like Microsoft stock but do not have the $14,000 needed to buy 100 shares, you can buy a call option instead. If MSFT rallies, your call option will also gain in value.
If you already own Microsoft stock for the long term but are worried the next earnings report will not be quite as strong as the last one, you can buy a put option. If the stock price dips, the put option price will move higher to partially, or completely, offset your loss. It's just like buying an insurance policy on your position.
Even if you primarily invest for income, options can goose the returns you get from your stocks. You can sell a call option on a stock you already own to earn the premium, or cash price, of that option. As long as your stock does not move significantly higher, you can repeat this over and over again to earn even more premiums.
There are many other simple ways to use options to achieve your investing goals. Keep in mind, options can be quite low in risk, too.
Options require a much lower outlay of capital but can return many times the gain of the underlying stock. That includes triple-digit percentages, even if the underlying stock only moves a few percent in price.
Options trading is not just for elite traders anymore…
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