An option in general gives a person the right but not the obligation, to buy or sell whatever the contract was created for.
For example, an option on a car gives you the chance to buy or sell that car for a specified price, but you don’t have to if you don’t want to buy it.
In return for this privilege to buy or sell an asset for a specified price anytime you want before it expires, there is a price to pay. This price is the option price. As we know, anything that has value or price, can and will be traded if there is profit to be earned.
In terms of the stock market, there are 2 types of options: Call Options and Put Options. Call Options give the owner the right to BUY the underlying stock at a specific price by a certain date; and Put Options give the owner the right to SELL the underlying stock at a specific price by a certain date.
Read on below to get familiarized with some concepts that will start you off to trading options. If you are looking for more specific information please visit Call-Options.com
Direction of Stock Price
Most people would guess that stock prices can only move in 2 directions , but stock prices can move in 3 directions:
- They can move up
- They can go down
- They can stay the same
Difference between Calls and Puts
A call option gives you the right to buy a security at a certain price by a certain date; and a “put option” gives you the right to sell a security at a certain price by a certain date.
You can remember this difference by remembering that a “call option” gives you the right to call the stock away from someone else and a “put option” gives you the right to put the stock (sell it) to someone.
Some more important Options Language
The “strike price” is the price at which someone has the right to buy a call option or the right to sell a put option.
The “expiration month” is the month in which the oportunity (or opportunity to buy/sell) expires (this is usually the 3rd Friday of each month).
Best Discount Option Brokers and Promotions
If you are ready to open a real brokerage account to start trading options, please look at this list of the best option brokers and their current offers and promotions.
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