What is options trading? Options trading is the trading using options but you can use stocks perfectly for make strategies and arbitrages. Follow reading the page and you understand better.
What are options? Options are contracts between two parties that give holders the right to buy or sell an stock at a certain price within a specific amount of time.
Why use options? Options are a powerful of buy and sell options with discounts or win premiums depending of the use. Because of the versatility of options, you can also make money when the market goes down or even sideways.
Example use of options: bruce has a call option with Apple for shares at $400 each. If the value of Apple were to decrease to $300 per share, Lexie could simply let the contract expire without purchasing the shares. However, if Apple shares increased to $450 each, she could exercise the option and buy the shares at the contract price of $400 each. She could then sell those shares for the new price of $450, and profit from the increase.
3 components of options:
1 – The option or obligation to buy or sell an investment in the future.
2 – The specific price called the strike price, that the investment will be bought or sold at an expiration date.
3 – An expiration date after which the contract becomes worthless.
kinds of options:
– Call Options: Call options refer to contracts that give investors the right to buy shares, usually 100, over a certain period of time. Investors will buy call options if they believe a stock or security is going to increase in value. By buying these options at a predetermined price (remember, the strike price), they can profit from the increased value when they ultimately sell the shares.
– Put Options: Put options are essentially the opposite, they allow investors to sell a certain amount of shares over a set period. This difference means investors are typically hoping for a higher strike price to make a profit — as this signals a higher value for the option. Essentially, when buying put options you want the price of the security or shares to decrease.