A Beginners Guide to Options Trading

Option trading

Options trading is becoming increasingly popular among investors. It’s no longer just the professional traders who are involved as more and more home traders and casual investors are taking advantage of the benefits of trading options. 

What Does Options Trading Involve?

Options trading involves buying and selling options contracts on public exchanges. It works like stock trading. Whereas stock traders make money by buying a stock and selling it at a higher price, options traders earn a profit by buying an option and selling it at a higher price. However, options trading is much more flexible compared to stock trading. Options contracts can be based on a wide range of underlying securities such as indices, stocks, foreign currencies, commodities, among other things, giving you far more opportunities for potential profits. 

Buying Options 

Buying an options contract is no different from buying a stock. You’re basically taking a long position on that option, believing that its value will increase. You can buy an options contract by simply choosing exactly what you want to buy and how many, and then submit your order to your broker. If your options increase in value, then you can either exercise your option or sell them. 

The good thing about options contracts is that you can buy them in situations when you expect the value of an underlying security to increase, and also in situations when you expect the value of the underlying security to decrease. If you expect the value of an underlying security to go up, then you would buy call options, which allows you to buy the underlying asset at a fixed price. If you expect the value to go down, then you would buy put options, which allows you to sell the underlying asset at a fixed price.

Selling and Writing Options

You can sell options contracts either by placing a sell to close order or by placing a sell to open order (writing options). You would usually use the sell to close order if the value of your options has increased and you want to take your profits at that point, or if the value of your options has decreased and you want to exit your position before you incur any other losses. You would usually place a sell to open order if you think the value of relevant underlying security wouldn’t change in such a way that the holder would be able to exercise his or her option to earn a profit. 

Options Spreads

The ability to create options spreads is what really makes trading options an interesting way to invest. While you can make money trading through buying an option and selling it if you earn a profit, it’s the spreads that provide you much more opportunities to make serious money. An option spread is created when you simultaneously buy and sell options of the same class on the same underlying security but with different expiration dates or strike prices. 

If you want to trade options, you will have to work with a brokerage firm that supports options. Keep in mind, however, that each platform is unique and has its own benefits and drawbacks. Thus, it’s best to clearly define what you want in an options account and platform before you get started.

Where are Mortgage Rates Headed in 2020?

Loan

It seems that the question on almost all homebuyers’ minds is- Is now the right time to buy? The right time to buy a home in Washington, Oregon, Idaho, or Colorado is different for each homebuyer; however where mortgage rates and home prices are can present more opportune times than others to buy a home. Rates have reached a historic place in 2019, where could they be headed in 2020 and what does that mean for the next wave of homebuyers? Read on to learn more.

Where were rates in 2019?

Rates have been at a very interesting place in 2019. By the fall of 2019, experts had estimated that mortgage rates would be in the 5 percent. However, mortgage rates were actually more than a whole percentage point lower in the 3 percent. Real estate professionals feel confident that rates will stay low for the rest of 2019

A couple factors played a role in the unexpected outcome. President Trump had been putting pressure on the Fed to keep rates low. In August the Fed lowered rates, this is the first time in over a decade that the Fed has reduced rates. Amazingly enough, the Fed lowered rates again in September by a quarter of a percentage point. Trade wars can also cause rates to lower. The trade wars between the U.S. and China, two countries with the strongest economies in the world, can decelerate economies and lower rates. 

Last but not least, you’ve probably heard something about a yield curve. A yield curve is a curve on a graph that is a good predictor of economic behavior. Currently the 2-year/10-year yield curve is inverted, which is an indicator of a recession and consequently means low rates and low rates to come. 

Where will rates go in 2020?

It’s difficult to know where exactly the market will go, however, rates are estimated to remain low for 2020. Even if rates do rise, rates will still be at historic lows. 

What do low rates mean for homebuyers in Washington, Oregon, Idaho, and Colorado?

If you’ve been considering purchasing a home in Washington, Oregon, Idaho, and Colorado, the remainder of 2019 or 2020 may be a favorable time to buy. Your mortgage interest rate is a fee for borrowing money from a lender. Your interest rate is a percentage of the amount that you are borrowing to finance your home and is paid to your lender monthly throughout the life of the loan. The amount that you are paying in interest can quickly add up, but with rates as low as they are you could be keeping hundreds of dollars in your pocket each month. 

If you’re already a homeowner in Washington, Oregon, Idaho, or Colorado you may be able to cash in on these low rates as well by refinancing your current home loan. Refinancing not only could help you get a lower rate, but it could also eliminate mortgage insurance if you’re paying it, decrease the term of the loan, or lower your monthly mortgage payment, which could save you even more money each month.

In 2018 a lot of potential homebuyers were on the fence about whether it was a good time to buy. Now many people are taking advantage of these low rates and making the leap to homeownership. Although there could be repercussions from such low rates. Typically, low rates have come with a rise in home prices. Therefore, if you have been considering purchasing a home of your own, now or early 2020 would be favorable to buy.

Summary- Mortgage interest rates entered new territory in 2019 by being over one percentage point lower than what experts had predicted and are forecasted to remain low for the rest of 2019. In 2020 rates are projected to continue to remain low. For homebuyers or homeowners looking to refinance, 2020 could be the right time to buy in Washington, Oregon, Idaho, or Colorado and save hundreds on your monthly mortgage payment.