Is Penny Stock Options for You

6 April, 2014

Investors sometimes feel that they don’t have sufficient leverage. When this happens, using the opportunities that present themselves and making a profit from them is difficult. You can build your portfolio with penny options and it’s also a good way to gain leverage.

A lot of stocks are priced incrementally – for example, at five or ten cent increments. Increments are not used in the methods of penny stock pricing but they vary by pennies. Traders’ leverage with penny stocks can be increased and if their stocks fail, they won’t lose too much since they can get into trading with less capital to start with.

Because you are playing in a smaller field with less money, you can make a profit in a relatively short time with penny options. A lot of people like the penny stock idea because you cannot lose more than your initial investment. However, there are some drawbacks in options unlike in underlying stock. Massively changing in a short period of time are penny stock options. These changes could either be positive or negative.

Finding out if a penny option would suit your requirements is important. A penny stock might be cheap but perhaps the liquidity does not suit your needs. The brokerage cancellation policy is another thing you need to find out. Also, ask what the time decay of the options is before purchasing them. Before you buy anything, ask yourself for how long you plan to be trading the options. If you want to trade an option for 10 days, then choose one ending in 30-40 days which means you should buy options that expire well after when you plan to sell.

Expiration dates is something you shouldn’t worry about if you already decided that you are going to trade for one day only. Working fine for you in this instance is the front month option. These days, penny options are not actually common. The method is used by traders and crafty brokerage firms in order for others to catch up soon.

When you’re trading penny stocks, you have to be patient. In just a few minutes, the options can move quite a lot so you need to relax and don’t panic if you’re nervous. If you are prone to panic and stress, maybe penny options are not a good idea for you.

If you are interested in increasing leverage but do not have enough capital to begin with blue chips, penny options are a good way to start.

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