Buying stocks and bonds are two totally different activities. In fact, a short trader will generally want to stay clear of bonds as they are more of a long term investment. By long term, I mean that a bond will usually take many years to become a worthwhile and profitable investment. Short term traders can find better uses of their money than tying it up in bonds that take many years to mature.
This doesn’t mean that traders should stay completely away from bonds. There is quite a bit of potential here, but only in certain instances. Bonds have no ownership properties, they are merely a debt owed by a company or government. Buying and selling bonds is seen as a valuable long term strategy within TradeVantage, but by speculating in bond options, you can trade bonds and take advantage of shorter term price changes.
A bond option can let you try and make money over the short term by predicting whether the bond’s value will go up or down. If you think the price will go up, you want a call option. If you think the price will decrease, you want a put option. Options let you buy a contract to buy or sell a set number of the asset in question after the end of a specified time. This expiration time is marked by a strike price, or the price at which you will be buying or selling the bonds. If the actual price moves far enough beyond the strike price in the right direction, you will be profitable.
The downside of options is that they are costly and they are not something that day traders can partake in. Even a short term option is still a long term option for an active day trader. But they have a valuable place within your portfolio if you know how to use them correctly. A short term option can be as little as a month, which makes them much more valuable to a trader than a multi-year bond would be. And by taking advantage of a company’s momentum, you can still make money with bond options even if you don’t want to hold onto an asset like a bond for many years. This allows you to profit over the short term while trading long term assets.
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