On a basic level what are options and options trading?
In: 1
an option is a contract that gives you the right to buy or sell a security at a specified price, within an agreed upon window of time. In other words, it’s a bet put down in writing.
let’s break that down.
1. An option is a contract. That means it’s an agreement between to parties. Every option has a party and a counter-party who is on the opposite side of the bet as you.
2. An option comes with a fee. They aren’t free. You have to buy options in order to have the right to buy or sell.
3. An option comes with an expiration date. If you haven’t exercised the option before then, it becomes null and void.
4. An option that gives you the right to buy a security is a Call option. An option that gives you the right to sell a security is a Put option. You would buy a Call option if you think the security’s price is going to be higher in the future. You lock in the right to buy it at a lower price today and then buy it for that price in the future when it’s worth more. You would buy a Put option if you think the security’s price will go down in the future. You lock in the right to sell it at today’s price which you expect will be higher than what you could sell it for in the future.
Latest Answers