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An u2018optionu2019 is an agreement that allows (but doesnu2019t mandate) trading between two parties to buy or sell or trade instruments like securities, ETFs, or index funds at a fixed cost and in a specified period. This market is called as options market. There are two types of options call and put option. The call option is referred to when the investor wants to purchase financial instruments in the future. Contradictory to this put option is when the trader sells the share in the option contract.<br>This presentation will give you a clear idea about options trading(https://www.edelweiss.in/investology/introduction-to-derivative-markets-8335c5/what-is-options-trading-a4a160).
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Introduction An ‘option’ is an agreement that allows (but doesn’t mandate) trading between two parties to buy or sell or trade instruments like securities, ETFs, or index funds at a fixed cost and in a specified period. This market is called as options market. There are two types of options call and put option. The call option is referred to when the investor wants to purchase financial instruments in the future. Contradictory to this put option is when the trader sells the share in the option contract. We will further understand what is options trading.
How options work? If purchase any share, whose price prediction will yield profit in the future. In this investment strategy, you must buy the stock at a lower price and later sell at a higher price to gain profit. But this prediction can go wrong due to the volatile and unpredictable markets nature. To save yourself from such potential losses, you can add the put option to the agreement which lets you sell the share at the predetermined price. However, it is necessary to carry out this deal before or on the expiration date.
What is options trading Options trading enables you to purchase or sell securities at a predetermined price within a pre-decided period. In options trading, buyers have the privilege and flexibility of not purchasing the security at the specified price before the expiration period. The concept of options trade is a bit complicated than stock trading, but with the help of options, you can yield larger profits if the price of the stocks goes higher. In options trading, you don’t have to pay the full price for the security. Similarly, options trading can protect you from losses if the price of the security goes down, this is called hedging.
Terms related to options trade • Strike Price: The predetermined value of the stock at which it will be bought or sold in the future. • Open Interest: Open interest refers to the total number of option contracts that are currently out there in the market at any given point in time. Open Interest for a contract becomes zero past the expiration date. • Strike Price Intervals: An option contract can be sold at different strike prices; all these different strike prices are referred to as strike price intervals. These prices are decided by the exchange on which the securities or assets are traded. • Lot Size: The Lot size indicates the set of units of the underlying asset that are part of a single contract. The typical lot size depends on the stock and is determined by the exchange on which the stock is traded.
Conclusion To sum up we understand the meaning of Options and understood the basics of options trading. You should learn about derivatives even more to get a hold on the concept and become an active trader in the derivative markets.
