Option trading services is among the most misunderstood trading procedures around the world today. It is really essential that the people, particularly the ones who’re interested in investing in the stock markets should be informed of the real meaning of option trading. In the view of many traders, options trading system is no more than a substitute of stock that has a higher leverage and less required capital. But the truth is very much different. The options have quite a different tenor than the stocks.
Generally there are primarily two types of option trading services. They are the call option and the put option. In the call option the purchaser of the option has the liberty to purchase the stock at the strike price anytime before the expiration date, while in the put option, the purchaser has the freedom to sell the stocks at the strike price anytime before the expiration date. It is really important to point out however that the option trading is considered to be among the safest modes of investing in the stock markets as the capital investment herein is the minimum whereas the profits are quite vast.
One of the options trading basics that you need to realise when you start to trade stock options is options pricing. It helps to find out why you’re paying what you’re paying for a particular options contract. It can go a long way towards determining if you wish to buy the option contract or whether you want to get a vendor of the option contract.
The New York Times introduces a new listing of stock options today, consolidating coverage of stock options that trade on more than one exchange and providing comprehensive coverage of the most active options and the ones that rise and fall the most. The table appears on page D17. Options provide relatively low-cost ways to speculate on stock prices and also offer opportunities to protect a stock portfolio. In addition, the trading in options can provide indications of which stocks are attracting …
Options are derivatives that tell you the rights but not the obligation to purchase or sell the underlying asset at a fixed price, known as a strike price. As there are many strike prices and expiration dates to choose from in options trading, it is much more versatile than futures trading in that options can have variable leverage due to the full range of strike prices available. This means that in options trading, you can be as aggressive or conservative as you’d like to be.
But, there’s so much more to consider.
Iron Condors is commonly used by traders who seek income from their trading capital. They will construct the posistion so that it will still profit for a much more price movement. For example if the current price is $40, instead of creating a situation where it will profit when the price moves up/down $10 (price between $30-$50), a dealer can create a situation where he can still profit when the price moves up/down $20 (price between $20-$60). Trader would generate monthly income by using this strategy.
The call option-When you buy a call option you have all the rights set out in the world to buy a stock at the strike price any time before the expiration. Remember you have the law and aren’t under any obligation to do so.
The put option-The purchase of the put option provides you with the freedom to sell a stock anytime at the strike price before the expiration date. Once again you’re under no requirement to do so.
Trading selling call options before expiration
Another major discrepancy between the stocks and the stock options is that the purchase price of the stocks gives the buyer a certain degree of ownership in the company whereas the stock options just give you the contractual freedom to buy or sell the stocks at a specific price and before a specific date.
Anytime when an individual sell options they generate a security that didn’t exist before. This process of selling an option is better known as ‘writing an option. ‘ Neither the associated company nor the options exchange issues options. Thus in the terminology of the options trading system, when an individual writes a call then he is required to sell shares at the strike price anytime before the expiration date, and after he writes a put then he is required to buy stocks at the strike price anytime before the expiration date.
Buying and selling of options is a very complicated affair. To learn options trading isn’t as easy that it seems to be. Therefore having a trusted aide with whom you can perform the selling or buying of the options is very much vital. Another important aspect with regards to learn options trading is that the one thing that you can loose in the trading of options is the premium that you’ve paid, otherwise the benefits that you can make are unlimited. In fact the writer of the option’s the one who is under the danger of loosing a lot more than the buyer of the option until and unless there is another option that is covering it or until there is some percentage in the underlying stock.