If you are looking to start in options trading, then it is important to have a good understanding of what options are, how the market works, and what other information you need in order to make this venture profitable .
Just like any other investment venture, options too have their share of terms with which you need to acquaint yourself. In addition, knowing the appropriate strategies to use will be crucial to guarantee success in your options trading business.
Furthermore, in order to apply the right techniques when trading require a more advanced form of education. However, with a simple option trading tutorial, you should be able to get started in your investment venture.
Here are a few topics to help you get started in options trading:
What is an Option?
An option refers to a contract sold by one party to another, which gives the buyer the right but not obligation to buy or sell a stock at the agreed price within a certain period.
What are the types of options?
Technically, there are two types of options — the call option, and the put option. Buying a call option gives you the right, but not the obligation, to purchase a stock at the strike price before the expiration date. Buying a put option on the other hand, gives the right, but not the obligation to sell a stock at the strike price any time before the expiration date.
What is the importance of a call option?
A call option represents the right to buy a security at a specified price on or before an expiration time. It is a type of security that is preferable when the stock or market is expected to rise significantly in price. In this case, if you happened to be correct, your reward could be quite substantial.
When should you use a put option?
A Put option is a contract that gives the owner the right to sell a stock at a specified price prior to expiration. However, this may tend to differ depending on whether you are selling in the US or UK — this is because, in the US you can sell a stock on or before the expiration date, while in the UK you can only sell a stock at the end of the contract, the same applies to the Call option.
A Put option is more desirable when the stock or market is expected to fall in price. A Put option is often used in combination with stock purchase in order to hedge against the possibilities of purchasing a stock only to have its price fall suddenly.
In order to determine when to buy (Call) or sell (Put) a stock, you need to have knowledge on conducting market analysis. Therefore, it will be important for you to learn more about the necessary techniques that you will require when trading options. Of course, this should also inform you on the kind of strategy to use in a given market condition. You can get most of this information from books, the Internet, and many other sources.