Options Trading Basics: Learn to trade options
Options Trading Basics: Learn how to trade options
An option is the right (but not an obligation) to buy the underlying asset / stock. There are two types – call options and put options. Let me explain further:
Call option
When you purchase a call option contract you have the right to buy the stock / underlying asset at the strike price before the expiration. You are not obligated to buy the stock / asset and you can let the options contract expire if you so desire. Understand though if you let it expire you will donate the money you spent buying the contract.
So when would you buy a call option? You would buy call options when you believe the market will rise in the short term (i.e. days to weeks). When the market price goes above the strike price, you are said to be 'in the money' because you would be able to profit if you were to sell the option contract immediately. However, if the market price is below the strike price, you are said to be 'out of the money'.
Put option
If you buy a put option contract you have right to sell the underlying asset / stock at a predetermined price by the expiration date. You are expecting the price of a stock to go down in the value in the near term (sometime before expiration).
If the market price goes below the strike price then you are 'in the money' otherwise you are said to be 'out of the money'.
Whether you choose to trade using call options or put options, you need to become educated. So many strategies and so many different ways to view the market. An online options trading course will allow you to complete in your own time.
Now that you are familiar with option trading basics
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Options Trading Basics: Learn how to trade options
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