Options trading is one avenue traders can use to accomplish a decent ROI or to protect other investments. It ain’t an easy path, and it is fraught with risk, but so is Life. Go about it carefully, methodically, and with diligence and you just might lower your risk and beat the odds.
What is an Option?
Options trading means you need a contract on an underlying financial instrument. This can be an equity (stock) or an index, such as an ETF (exchange-traded fund). There are other, more exotic, instruments to trade, but for the purposes of this post, “stocks” are the focus.
The contract for the option establishes a specific price and time upon which the contract will be exercised. That would be the strike price and the expiration date. Keep in mind that when that option expires, its value becomes extinct, along with the option itself. As well, every option contract has a price called a premium.
As stated earlier, options trading can be complex, but if you learn the process from the basics up, it can be quite simple. So, here it is. There are only two types of options – calls and puts. You can buy or sell either. Empirically, this is it. You choose to buy or sell (either a call or put) a stock in the future with a contract.
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