How to trade in futures and options in hindi - How to Trade Stock Options - Basics of Call & Put Options Explained
Options involve risk and are not suitable for every investor. Prior to buying or selling an option, every broker requires investors to read a copy of the Options Disclosure Document ODD. Options are also known as derivatives or derivative instruments.
This comes from the fact that optikns derive their value from another underlying asset. Equity options derive their value from the underlying equity stock price. Like stock shares, they can be bought or sold.
Unlike stock shares, options are contracts. Like a legal contract, they give rights to the owner holder of the contract in exchange for a premium paid. There are two types of option optoins.
Call options and put options. Notice the seller is obligated hidni fulfill the contract; the holder has all the rights to choose whether to exercise their purchased rights.
The owner of the call option literally has the right to CALL the stock away from the seller. Thus the name, call option.
On the put side, the owner of the put option has the right but not the obligation to sell the underlying stock at a predetermined trave any time before the contract expires. Sellers of puts have the obligation to buy the stock at a predetermined price any time before the contact expires.
The owner of the put option literally has the right to PUT the stock to the seller. This is the specific price at which the option contract may be exercised or acted upon. The highs and lows of stock market investing can be nerve wracking, even for the most experienced investors.
Taking risks with your money is always a source of anxiety. One way you can gain access to the market without the risk of actually buying stocks or selling stocks is through options. The strategic use of options can allow you to mitigate risk while maintaining the potential for big profits, at only a fraction of the cost of buying shares of a futurea.
An option is the right to buy or sell a security at a certain price within a specified time frame. The best thing about options hpw that you have options trading training freedom to choose whether or not to exercise them.
If you bet wrong, you can just let your options expire.
With all this talk about how great options are, it seems like everyone should buy options, right? Well, not so fast.
Now, here is a detailed analysis of the two basic types of options: You could alternatively choose to make a profit by re-selling your option on the open market futurees another investor. This will often lead to a similar gain. The only way this can happen is if the underlying company went bankrupt and their stock price went to zero.
As you can see, options can lead to huge lossesespecially when you analyze it from a percentage point of view. Here is a text book definition: Here is how I define Option: It is basically an agreement between two parties to sell or purchase the right to an underlying stock.
The buyer of an Option pays a premium to the seller with a hope or speculation that the stock price may move up before the expiration of the agreement or vice versa.
How are Options different from Stocks? The Option contract has an expiration date unlike stocks.
The expiration can vary from weeks, months to years depending upon the regulations and the type of Option that you are practicing. Stocks on the other hand do not have an expiration date.
In this part I will take you through some of the most important aspects of Option trading. Type of Options In true sense there are only two type of Options i.
A Call Option is an option to buy an underlying Stock on or before its expiration date. Gow the time of buying a Call Option you pay a certain amount of premium to the seller which grants you the right to but the underlying stock at a specified price strike price.
Whereas, a Put Option is an option to sell an underlying Stock on or before its expiration date. Purchasing a Put Option means that you are bearish about the market and hoping that the price of the underlying stock may go down.
Nonstatutory stock options taxable order for you to make profit the price of the stock should go down from the strike price of the Put Option that you have purchased before or at the time of its expiration. What is Strike Price in Options Trading? The Strike Price is the price at which the underlying stocks can be bought or sold as per the contract.
It is often referred as exercise. Underlying Asset Underlying asset can be stocks, futures, index, commodity or currency.
Description:Apr 24, - Options are one of the most popular derivatives that are traded in stock market. In this post, I will share my personal experience with Option.