An Introduction to Option Stock Trading


An Introduction to Option Stock Trading

Stock is the shares in which ownership of an enterprise is divided up among the shareholders. In American English, the stocks are collectively referred to as “stock.” Each share of this stock represents fractional ownership in proportion to the number of outstanding shares available at the time of purchase. There are two classes of stock: common stock and preferred stock.

The common stock is the most common kind of stock. All shares of this stock are owned by the shareholders of a given corporation. The dividends per share, if any, are distributed to all shareholders. There is normally no limitation on the number or type of shares that may be owned.

Common stockholders usually enjoy tax advantages, because dividends are treated as income and are subject to income tax. Capital gains and capital losses are deductible for their owners’ tax basis in the transactions related to their ownership of stock. If dividends are received by the owner, they are taxed only once rather than every year as is the case with most other kinds of tax.

Preferred stocks have different rights and privileges than the common stocks. This means that dividends and capital gains are also different. Preferred stocks usually come with restrictions on the transfer of shares between corporations and between persons. Usually, preferred stocks have limited transferability. The shareholder must belong to an existing corporation to allow transfer.

Finally, there are two types of individual stocks: one way and two way street stocks. One way stock certificates are issued on an individual basis and do not represent the ownership rights of any corporation or partnership. They are issued in preference to another company’s shares. Two way street stocks represent the right of survivorship of a shareholder.

Whichever option is chosen for an individual investor, he/she should understand that it will take time for them to see the full results. Stocks should be bought and sold according to one’s trading goals and strategies. Prior to investing in stocks, investors should establish a written investment strategy. Once they have this written strategy, they can start buying and selling stocks according to their plans. The best way to invest is to build a solid financial portfolio over time.

For a beginner investor, the safest way of investing money in the stock market is to invest in low risk investments such as dividend stocks and bonds. Dividend stocks pay regular cash dividends to investors, allowing them to build a strong portfolio. Bond investing offers similar benefits to that of dividend stocks, but is even more volatile because it offers greater returns through inflation. Bond rates are updated regularly to help investors track the performance of the bond portfolio.

Regardless of which type of investment an investor chooses, options trading is a sound method of investing money. Capital gains and dividends should always be used with caution, especially for a beginner investor. They should not be relied upon alone to make large profits. Educate yourself about the stock market before investing money in stocks and bonds.