Options trading is a type of investing which allows investors to see quick and effective results with limited investments. Trading in options requires a relatively low upfront financial commitment compared to regular stock trading, and there is the potential for incredibly high returns on investment as a result. However, it’s not exactly easy money – options trading also comes with its fair share of risks. Unlimited financial losses and increased risk are just some of the points you need to consider before starting with options hedging. We recommend that you consider both the risks and benefits of options trading before making any financial decisions. Any type of investing carries risks and this also holds true for options trading.
Taking that into consideration, are you still interested in learning options trading online?
If you are, then fantastic! Let’s explore the topic some more. Let’s start off by answering – what exactly are options?
Options are instruments which are a part of the derivatives family. The price of the underlying stock and the price of an option are fundamentally linked together.
Trading in options usually takes two forms:
- Puts – You are predicting that the underlying stock asset will go DOWN in price
- Calls – You are predicting that the underlying stock asset will go UP in price
You could say it is a kind of an agreement, which happens between 2 parties, to sell or purchase the rights to an underlying stock. The option’s buyer pays some premium to the seller, and the buyer pays that price with a hope that the stock price will move prior to the expiration of the agreement or vice versa.