- Posted in: Trading Discussion Group
what do you know about options?
options trading is becoming more and more famous among traders as it is considered a low cost investment with very big returns
if you want to buy 100 shares of a company valued at 100$ a share, the deal will cost you 10k, but in options you will only have to pay 10% of this amount if not less. we’ll explain how?
first let’s know a little bit about options
options contract is described as: buying the right to buy/sell a certain security at a certain price on a certain date.
if i wanted to buy the mentioned stock above but i intend to buy it after one month from now, but i’m afraid of losing the opportunity of getting a good price like it’s current price, what i do is i buy an option contract which gives me the right to buy the real stock upon maturity of the option contract at market prices after subtracting the option contract value
for example: the share current value is 100usd, the option contract value is 5usd
i bought one option contract to buy the real share after one month and i paid 500usd(each option contract consists of 100 shares)
at maturity the real stock price was still 100 usd
so i will execute my contract and pay the remaining 99500 usd and get 100 real stocks instead of the option contract
well that’s the basic theory of options, but as trading and investment is getting larger each day, traders are always looking for new methods of profit with least investment possible, options trading became a very attractive method for quick investments
option trading is built from tow major elements :
-buying the right
-selling the right
each of these consists of another tow elements
-the right to buy
-the right to sell
which derives for kinds of trades available in options trading:
-buying the right to buy
-buying the right to sell
-selling the right to buy
-selling the right to sell
we will explain each kind of options before explaining how to trade and benefit in options trading
-buying the right to buy
the main idea in this kind of option is:
a trader expects a stock to move up in few days or weeks, but right now he’s not interested in buying the stock or do not hold enough money to buy it, in the same time he is afraid of losing the chance of the good price, so he decides to buy a contract to give him the right to buy these stocks in the future.
each contract in options trading consists of 100 shares
to be continued>>>>>>>>>>>
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