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You may have heard the mention about employee stock options quite a few times, but may have wondered what these are exactly and how you as a common employee can actually benefit from it. Let us learn in this article about the whole concept of employee stock options (ESO) and how they can be of great benefit to you.

What Is An Employee Stock Option?

Employee stock options (ESO) are contracts granted to specific employees of a certain company that give rights to trade shares in the company at a fixed price and within an indicated time period. Unlike a typical option traded in the exchange however, there is no put component included.

The basic goal for this type of concept is actually to boost business within an institution. By giving employees the benefit to buy option shares of the company that they work for, they would be motivated to strive harder and work for good business production. In theory, when stocks go up, and when employees perform at their best to ensure that their investments would pay off, then business would reach its peak of high performance.

Even if the theory mainly tries to align the incentives between the major shareholders of a company and the employees, many critics have pointed out however, that there is an enormous difference between owning an option and actually owning the underlying stock.

In cases wherein stocks go down, the owner of an option would lose the opportunity of a bonus gain, but would not necessarily experience the same loss of investment from an actual stockholder. But still, at the moment, this system has proven to be of very big help to a lot of major companies in the world.

How Do I Exercise My Employee Stock Option?

The thing that people have to know about exercising employee stock options is that in most companies, there are no brokerage firms available and so, you have to do most of the work on your own.

A stock needs to be purchased by a licensed representative. And so, you have to call a broker to inform them that you are interested in exercising your options. They can do all the needed paperwork for you and can even contact your company to speed up the ongoing transaction.

Most people would opt to exercise through a cashless method in which you can use margins to purchase stocks instead of cash. Margins are actually loans that are granted by departments because they guarantee quick repayments and take not that there are not interests assessed.

Once you have made the purchase and have sold your stock, you can pay for your loan as well as the taxes. Just make sure that the portion required for you to sell is small enough for you to be able to retain profit.

Employee stock options are great tools that benefit both the company and its employees. It is a great way to ensure productivity and fluidity within an institution’s financial market and this can provide many opportunities for gains to a lot of people.

If you are one of those that work for huge companies who offer ESOs, take the opportunity to invest. This may not always be as easy, but once you know how to smartly handle such trades, then this can surely give you much promise for a good and promising investment.

Stock option trading is not an advisable endeavor if you are new to the whole stock market game. If you delve into it unprepared, chances are, you may lose a lot of money as fast as you can make it. But doing your homework and starting out from the very basics can help groom you to be able to play in this complicated game. After all, this is a powerful investment tool if you plan to stay long in the stock market business.

What Are Stock Options?

First and foremost, it is important that you do not confuse an option with an actual stock. A stock option is actually a contract that gives the rights to either buy or sell the securities or commodities of a certain stock at a fixed price and within a specified time. When you trade options, you are basically just trading your privileges for securities or even certain merchandise involved, but not the stock itself.

These stock options are actually very important in the market because they provide advanced investors with extra opportunities that could pave way to better returns in doing business within the stock market. Investors usually make use of these rights to evade from price declines, to give insurance for the price of a future purchase, or even to help them speculate future stock prices.

There are two kinds of options –call options and put options. Call options basically give purchasers the privilege to buy underlying stocks, while put options allow the purchaser to sell the underlying stocks.

How Do You Exercise Options?

If you already own an option, you can exercise buying or selling its stock any time on or before its expiration date. This would allow you to trade the stock at a set price regardless of what the current market price is for that particular stock.

And thus, you can have the privilege of buying or selling stocks in cases wherein you fear that prices might get too high or too low for you. In this way, you have certain degree of insurance on the investments that you make. A lot of investors simply make trades without any intent of possessing the underlying securities.

How Do You Trade Options?

In trading options, also take not that the pricing may be extremely complicated. But it will basically depend on two major factors –the pricing of the underlying stocks and the amount of time remaining within the contract.

The price for principal stocks that accompany the options directly affects the price of the option. If the demand for the stocks is high, the price for the options will also go up and vice versa.

The amount of time left within the contract for an option also determines the price. As time expires, the price for the option may go down as it may become less desirable.

Take note that in the trading options game, investors use various trading strategies, which may all be very risky and complicated. And so, to become really successful in your attempts to profit from option trading, make sure that you at least familiarize yourself with the different strategies and consult experts who can give you good and reliable training.

Stock option trading can be a very strong investment tool for anyone who does business in the stock market. However, keep in mind that for someone who is not as familiar with the different strategies and if you are new to the stock exchange, this may be a very risky endeavor to take on. And so, utmost caution for beginners is highly advised.

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There are a lot of chart patterns that you can learn out there. There are so many of them. Some which I think is well known are:

• Hanging man
• Shotting star
• Inverted hammer
• Bullish and Bearish Engulfing
• Bearish and Bearish Harami
• Pearsing Line
• Dark cloud
• Abondoned Baby
• Three White Soldiers and Three Black Crows

There are so much of them. How would you be able to master all of them? Trading should be simple right? They should be, so I created my own rule, which is quite conservative. Here are they:

Enter Buy position:

• Break resistance.
• Bullish Engulfing, when the white candlestick body is much bigger then the previous black candlestick body.

Close the Buy position:

• Price is near the next resistance. I better quit near the next resistance because you wouldn’t know what will happened. It’s a 50:50 change, so I better close my position.
• Candlestick closing price is lower than previous candlestick closing price.
• Long upper tail, because this is signs that traders are pushing price lower.

Enter Sell position:

• Break support.
• Bearing Engulfing, when the black candlestick body is much bigger then the previous white candlestick body.

Close the Buy position:

• Price is near the next support. I better quit near the next support because you wouldn’t know what will happened. It’s a 50:50 change, so I better close my position.
• Candlestick closing price is higher than previous candlestick closing price.
• Long lower tail, because this is signs that traders are pushing price higher.

A cup and handle is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed. The cup should be “U” shaped and resemble rounding bottom. The pause happened when there are people who take profit making demand is higher than supply. The smaller the retracement the more bullish it will be. Sometimes it is prudent to wait for a break above the resistance line with high volume.