Learn How to Trade Options
A trade option is an agreement/contract between two parties to buy or sell an underlying asset at a specific price (i.e. strike price) on a fixed date (i.e. expiration date). Trade Options are financial instruments with rules and terms, and include a buyer and a seller. The buyer known as the holder has the right but not the obligation to buy the asset at a specified price on or before the expiration date. The buyer can forfeit the contract on finding out the contract worthless. The seller known as writer, however, has the right to sell and is obligated to fulfill the terms of the contract.
Option trading startegy provides various advantages like leverage, insurance, profits, betting, etc. With option a trader can take a view of market direction with lesser risk and get unlimited profit.
Types of Option Contracts
•Call Options: Call option gives the buyer the right to buy an asset at a specified price on or before the expiration date. Call buyers hope that the stock will increase before the expiration date. Call buyers are not obligated to buy or sell. They have the choice to exercise their right to buy or not.
•Put Options: Put option gives the seller the right to sell an asset at a specified price within a given time frame. Put buyers hope that the price of the stock will fall before the option expires. Put buyers are obligated under the contract to buy or sell until the expiration date.
Financial Trade Options
•Exchange Traded Options: Exchange traded options are the listed options in which terms for the option are standardized by the exchange. In this the assets, quantity, expiration date, strike price are known in advance. Some of the exchange traded options are: stock options, commodity options, options on future contracts, index options, etc.
•Over the Counter options or OTC options: Otc Options are traded between two parties, and the terms of the option contract are customized. Otc Options are not listed on an exchange. Some of the Otc Options are: swap options, interest rate options, currency cross rate options.
•Employee Stock Options: The employee stock options are given to a company's employees as compensation.
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