I always wonder where it is best to start getting into trading stock. Like a place where you can play with a few shares but are not overwhelmed with lots of fees for simple transactions. Any suggestions? Possibly in Europe?
I would paper trade for a couple of months, i.e. don't use real money but write down buy/sell actions in your journal. then see if you made money or not. real trading is a lot different but through this you get used to the process.
If you are in technology for ex., I would have a look at tech shares, you will then have a slight information advantage at least.
Trading account: either just talk to your bank (most of them provide a trading account) or find a broker on comparison websites. ultimately the trading fee, if not exaggerated, is not that important if you only dabble once in a while.
I wouldn't trade stock per se, I would trade LEAPS or use a combination of options and stock trading.
For example, enter the market by writing Puts, earn a premium and if executed you then own shares at a discount. Then turnaround and write Covered Calls on the stock for out of the money strike prices. Earn a premium on your stock, and earn dividends, and capital gains. Protect your capital by using part of your Call premium to purchase a protective put on your stock (in line with your risk profile). If executed on the Call repeat by writing Puts.
Of course there is a lot you need to know, Google is your friend.
What? If you write a put option, and it is executed, then you have to buy the stock for its strike price, which will be above its market price (that's why the put was executed in the first place). You end up buying the stock at a premium, not at a discount.
Here's a concrete example. A stock is trading at $100 and you write a put on it struck at $90, earning a premium of (say) $5. Then the stock falls to $80 and the put is executed, so you buy the stock for $90.
You now have something worth $80 and a $5 premium, but you paid $90, so you are $5 out of pocket.
Now you write a covered call on the stock struck at $100, earning a $3 premium (because it's further out of the money the the put you wrote earlier). The stock goes to $110, so you sell it to the call owner for $100. That's nice, you've earned the $3 premium and you sold the stock for $10 more than you bought it for (a total of $13 up). But if you hadn't written the call, you could have sold the stock for $110, and been $20 up instead.
If you also buy a protective put (say for $1) then that's an additional loss you bear in this scenario, since you can't execute the put.
If you're writing options, you're basically betting against market volatility. You'll do alright in the short term, but you'll get absolutely creamed if there's a stock market crash or other crisis.
For clarification you write puts at or out of the money. If executed, the premium earnt offsets the difference between strike price and spot price. No one is saying this guarantees against a market crashes but it acts as a cushion. You are still trading when you decide not to place a trade.
To put it another way, you make money when you buy, not when you sell. Therefore your purchase price is a margin of safety if done right. I carefully select the companies I trade by building up a 'conservative' price target based on a company's tangible book value per share (TBVPS). I try to write puts that offer a good risk/reward profile relative to the TBVPS. Even if I was caught in a market crash I'm as close to book value as I can get. Having done my homework I'm sure this company will outlast the extreme market sentiment. When such events occur I add to my position on the strength of my fundamental analysis. The market always overshoots and creates a wealth transfer opportunity.
In both my examples, the options were written out of the money. That means the premium is small (because the option is unlikely to be executed - premium is always largest for at the money options). Whether or not the premium offsets the difference between strike and spot totally depends on the size of the move! If the option starts $10 out of the money with a $5 premium, and it ends up $10 in the money, you've lost $5 whichever way you look at it.
Your advice of combining options and stocks is at best a little naive, and at worst will be a disaster for anyone who's not a sophisticated options trader.
Writing puts seems like a free money, if you think about it as possibly owning your favorite stock at a discount in worst case scenario.
Problem with this is that sometimes the price might dip for irrational reasons(let's call it technical reasons), which is the good scenario.
However, sometimes price might dip because of fundamental reasons(let's say company announces that their CFO has misstated results for last 5 quarters).
Even worse is writing Covered Calls without any thought. There was that guy on Reddit who sold Covered Calls on his McDonalds stock. It worked great for a few months, collecting premiums while the stock stayed stagnant. Then the stock dipped in such a way that writing Covered Calls at the original strike price was not really worth it anymore, while writing at a lower price than purchase price was even worse. The protective puts(which he did not have) would not have been triggered either as the dip was not low enough.
Yes, what sireat is saying is somewhat true. However with options I believe you have a greater flexibility and more opportunity to make gains when compared to trading stock on its own.
With this strategy you have the chance to protect your capital (by buying protective puts) while earning an income (write premium) and capital gains (in the money Covered Call strikes and dividends). You can make money with this strategy when the market is going straight up, somewhat up, and sideways. You can protect your capital when the market goes somewhat down, but you will loose money if the market crashes.
Frankly there is much I've not said when it comes to trading that is do or die. Money management, position sizing, managing positions, emotional management, fundamental/technical/sentimental analysis just to name a few areas a successful trader should master or at the very least have a working knowledge of.
The volatility skew on equities is generally downward sloping as a function of strike (because investors are scared of crashes), meaning that the puts you buy to protect your capital will be more expensive than the calls you are selling to earn the premium - if you want the same amount of downside protection as you have upside risk, you'll actually bleed cash with this strategy. The only solution is to buy less downside protection that upside risk, which leaves you vulnerable to a market crash, whilst at the same time capping your upside - exactly the situation you don't want to be in!
If the price moves against you (down if you have written a put, up if you have written a call) then you never get the chance to buy the options back at a profit. You might get a bit of theta decay, but equally any large moves will tend to kill you on the gamma and vega.
As I said in another comment, writing options covered or not is basically a bet against volatility.
But you don't own our favorite stock at a discount. If you've written a put on AAPL struck at $450, and it drops to $400, you are forced to buy it at $450 - you end up buying it at a premium! What's worse, even if you think the stock is too cheap at $400, you have a $50 hole to climb out of before you can start realizing any of that gain.
