With the advent of the online world, everything is almost possible. The online world is not only a means to advertise your business, to check on your friends and relatives in the other side of the world but at the same time, this can also be a medium to earn really big though of course, there is also a chance to lose everything if you won’t watch out. This is what they call online trading and one way to trade is through the options trading style. This is when you will but an option which is a contract of the underlying commodity which can be a property, stock or index.
Because this is not the conventional only trading where you simply buy stocks and track its value so that you can sell it at the right time, with options trading, though basically the system is the same but the holders or those people who purchase options, have the deciding rights. The owner of the underlying commodity will just have to wait whatever will be the decision of the holder. However, the holder will just be given a specific amount of time to decide and when that time will pass and he just did nothing, then it goes without saying that the rights of the underlying commodity will be transferred back to the owner.
It means that the holder of the option or the buyer for that matter has the right but does not have the obligation to do something.
There are two basic types of options and these are:
- Call – this will provide the holder of the option the right to buy the underlying asset at the agreed or predetermined price in a given period of time. This is also called the long position.
- Put – this is the opposite of call as this will give the right to the holder to sell the asset at the agreed price in a specific period of time. This is also called the short position.
Here more important matters you should know about options trading:
The stock – this is where the option is based. Most of the time, this represents 100 shares.
The date – this is when the option expires and the rights will be back solely to the real owner of the asset. Most of the time, it is the third Friday of the month.
The strike price – this is the price where the asset can be sold or purchased. If the option will be exercised, the hands will change when this will be reached.
The type of the option – this is either call or put.
The premium – this is the price where the asset will be sold or bought. Most of the time, this represents 100 shares of the underlying asset.
Option trading is quite confusing than the conventional way of trading though, online trading in general is really complicated. This is why, you should look for a trading community where you will be able to learn from the pros.
About the author – Kim Klaiman is the person you can count on when it comes to options trading. However, he claims that you need to at least learn the basics in this system first.