In options trading, an option refers to a contractual agreement that gives the owner, the purchaser, the right, yet not the duty, to purchase or sell an underlying instrument or commodity at a certain strike price as soon as or within a certain period of time, according to the type of the agreement. The owner can either choose to exercise it or to let it expire. This article is about the various types of options available in the market today. There are two categories of options, namely, calls and puts. Among these, puts are more popular because of their high volatility.
Calls for sale give the buyer the right to purchase an underlying instrument or commodity at the strike price before the expiry date. Calls have higher premiums than puts. It means that the risks of trading calls are less than that of trading puts. The other important concept that should be understood by the novice trader is that of option speculation. This means that if the speculation pays off, so will the profits.
Options trading can be risky, especially for inexperienced traders. There is much to learn about Options trading before one gets into the market. It is best if a person, after acquiring a basic knowledge about stock options, can study the current market and how it works. Learning how the stock market works is necessary for an informed decision-making when buying and selling stock options.
The underlying assets for stock options are generally financial products such as currencies and stocks. The term ‘strike’ is used here to describe the period when the option is allowed to be exercised; it is not just the money invested on the security or the duration of time spent on buying the put. The strike price is the amount at which the options trader will get the full premium; if the value of the underlying asset decreases during the strike period, so does the strike price.
There are three classifications of options trading; call options, put options and naked options. Call options are those where the trader has the right but not the ability to purchase the underlying asset during the strike period; the strike price is not determined by the underlying asset. This type of options trading is usually seen in commodity markets. A put option gives the rights to sell a specific asset, but the strike is pre-determined and pre-set. Naked options give the rights to buy, but the buyer has no guarantee as to the buying price.
There are options trading strategies that favor long straddle, intraday trade and short straddle. Long Straddle is the use of two call options for the same asset classes. Intraday trade is trading the asset classes just before the opening and closing bell for the same day; intraday trades are done at the end of the business day. Short Straddle is the selling and buying of the underlying securities while the intraday strategy is holding the position overnight. Bear in mind that all these strategies are meant for a specific time frame or end of day. You can visit https://www.webullapp.com for more information.