With the ever-changing economic landscape and the fast paced environment of today’s online market, starting up with options and investment trading can at times be a little daunting. Luckily, there are many resources available and expert investors with decades of experience and solid success under their belt ready to walk you through the steps necessary for success. There is also a wealth of advice available for new traders as well as veteran professionals in the field. So, what are options and investment trading?
Option trading is a market that allows you to purchase or sell options in any stock exchange. For example, you can sell the right to buy or sell a particular stock in one day. This is one of the most popular forms of financial trading today. In fact, many seasoned investors still rely on option and stock trading to help them manage their money and hedge their risks. The reason for this is because it has proven to be extremely profitable over the years.
Stock trading uses the same concept. You buy shares of a stock, typically at an option strike price. At the expiration date, you choose whether or not you wish to exercise the option and sell your shares or hold out for the expiration date and simply sell your shares at the strike price. In either scenario, your profits or losses are determined at the expiration date.
The beauty of this form of trading is that you don’t have to worry about investing or managing money in order to work with options or stock trading. In fact, many experts say that this type of investment is probably the most hands off and risk free type of investment possible.
Options trading and stock trading are two different markets, but they share some similarities. Options allow you to buy or sell a stock at a specific price. There are three main types of options available. These include call option, put option and both calls and puts. The three different options are commonly referred to as call, put, and call spread.
Call options allow you to purchase a stock for a specified price at the strike price without the option being exercised. When you call a call option, the stock remains the same until it expires. At this point, if you purchase another stock, you exercise the option and pay the original cost of the stock at the strike price, which is the price you called. At this point, you owe nothing. However, if you do not exercise the option, the stock remains the same until the date that it expires.
A put option gives you the right to sell the stock at the strike price on or before the expiration date, however, you will have to pay the premium that was stated in the option if you choose to exercise it. The difference between the premium and the option costs is known as the premium. A put option is often used by traders who are fearful of loss or would like to hedge their risks. A put option is similar to a futures contract in the way that you can use it to hedge your risk.
Puts are commonly sold in large quantities and are used in options and stock trading. A put option gives you the right to sell the stock before the expiration date if you do not wish to pay the option costs. In contrast, a put spread allows you to sell the stock before the expiration date if you wish to. A put spread gives you the right to sell the stock at a higher price than the option costs, but you are obligated to pay the premium. if you do exercise the option, the premium is refunded to you.