What are Options:Stock options explained

If you are out there in the market, thinking about buying stock options as an investment method, you probably want to get stock options explained with a little more detail. As most of you know, the basic definition of a stock option is, it is a contract giving the owner the right to buy/sell some stocks at a specific price before a specific time. So, the option buyers have the right to buy/sell the stocks at that predefined price, but not the obligation. And the option sellers, also known as options writers, have the obligation to sell/buy the stocks at that price if the option buyers want it.

The first point in the optiontrading is, it gives the buyer of the option the right, not the obligation. This makes options a lot safer. You can buy/sell stocks later if you think it will benefit you, or can just let the option expire if you think the conditions are changed and you will be losing money bybuying/selling the stocks.

So, to get stock options explained, you first need to know the types of options. But before that, you need to know some terms. One is the strike price, which is the price fixed for the stocks in the option. Then there is expiration date, after which the option is invalid. The expiration date is expressed in months only and is usually the 3rd Friday of the month specified.Now coming to the types of options,first one is a call option. It is the right to buy the stock. And then there is put option, which is the right to sell the stock. In both cases, everything else is same, except the selling and buying of the stock. In case of the call option, the options buyers are the investors and in case of the put option, the option buyers are the owners of the stock.

Now to get the style of referring to stock options explained, the options are referred by the name of the stock, the expiry date, the strike price, and the type. For example, the “XYZ June 100 call” means it is the call option to buy the stocks of XYZ at a strike price of 100$ before June. Usually the strike price of the option is defined for single stocks, but the options are sold for 100 stocks in bulk. In that case, for the example option the option buyer has the right to buy 100 stocks of XYZ at a price of 10,000$ before June, regardless of the actual market price of the 100 stocks of the time of exercising the option.

Another important thing about options is that, the price in which is the option is sold is separate from the strike price. It can be one-time payment or a monthly premium. It is the only loss for the options buyer if the option is not exercised for some reason.

So, it was the basics of the options trading. Knowing this much may enable potential option traders to understand the options available in the market. But it is advised to get stock options explainedat a professional level from licensed firms before engaging in any kind of options trading activity to reduce chance of losses.

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