What Happens To Your.Stock When Is.Loosing All Ivested Money Learn Options Trading – Option Strategy Basics

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Learn Options Trading – Option Strategy Basics

Before learning the basics of how to trade options and strategies, it is important to understand the types, cost and risks before opening an options trading account. This article will focus on stock options versus foreign currencies, bonds, or other securities on which options can be traded. This part will mainly focus on the buy side of the market and the trading strategies used.

What is a stock option

An option is the right to buy or sell shares at the strike price. Each stock contract will have an expiration month, a strike price, and a premium, which is the price of the call or short option. If the contract is not executed before the option expires, you will lose the money invested in your trading account from that contract. It is important to know that these instruments are riskier than owning the shares themselves because, unlike actual shares, options have a time limit. There are 2 types of contracts. Calls and puts, how to trade them and the fundamentals behind them.

What is a call option and how to trade it?

A call option contract gives the holder the right to buy 100 shares (per contract) at a fixed strike price that does not change regardless of the actual market price of the stock. Example of a call option contract:

1 PKT Dec 40 Call with $500 bonus. PKT is the stock you buy a contract for. 1 means one option contract for 100 shares of PKT. The basic idea and learning of how to trade options in this example is that you pay $500, which is 100% risk if you do nothing with the contract until December, but you have the right to buy 100 shares at 40. So if PKT rises to 60. You can execute the contract and buy 100 shares at 40. If you immediately sell the shares in the open market, you will make a profit of 20 points or $2000. You paid a premium of $500, so your total net profit in this options trading example would be $1,500. So the bottom line is that you always want the market to go up when you go long or buy a call option.

Trading Strategy vs. Exercising and Understanding Premiums

With call options, the premium will increase as the market for the underlying stock rises. Buyer demand will increase. This increase in premiums allows the investor to trade the option in the market at a profit. So you’re not fulfilling the contract, you’re exchanging it back. The difference between the premium you paid and the premium it sold for will be your profit. The advantage for people who want to learn how to trade options or learn the basics of a trading strategy is that you don’t have to buy the stock right away to profit from the increase in calls.

What are put options?

A put option is the reverse of a call contract. Puts allow the owner of the contract to SELL the stock at the strike price. You are bearish on the stock or perhaps the sector in which the company is located. Because selling short stocks is extremely risky because you have to cover that short and the price of your redemption of those shares is unknown. Bet it’s wrong and you’re in a world of trouble. However, put options leave the risk of the value of the option itself – the premium. Learning or getting information on how to trade puts starts with the above and looks at an example of a put contract. Using the same contract as above, our market expectation is quite different.

1 PKT Dec 40 Put with $500 bonus. If the stock goes down, the trader has the right to sell the stock at 40, no matter how low the market goes. You are bearish when you buy or exercise long options. Learning to trade or understanding puts starts with market orientation and what you paid for the option. Any major strategy you take on this contract must be completed by December. Options usually expire at the end of the month.

You have the same 3 trading strategy options.

Allowing the option to expire is usually because the market has risen and it is not worth trading, as is exercising your right to sell it at the strike price.

Execute the contract – The market has gone down, so you buy the stock at a lower price and execute the contract to sell it at 40 and make a profit.

When trading an option, the market has either gone down, which has increased the premium, or the market has gone up and you just want to get out before you lose all of your premium.

Conclusion Basics

Trading options carries good leverage because you don’t have to buy or short the stock itself, which requires more capital.

They bear 100% of the risk of invested premiums.

There is an expiration period to take action after you buy options.

Trading options should be done slowly and with stocks you are familiar with.

Hopefully you have learned some basics of options trading, investing and how to trade them. Look for more of our articles. American investment training.

Learn more about options and trading strategies

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