Publication date: March 29, 2024

Options by Yelza: Basic Knowledge

If you are interested in the financial world, you may be familiar with the term "options." Options are versatile financial instruments that offer investors a unique opportunity to profit from price changes in stocks, indices, currencies, and commodities. In this guide, we will take you into the world of options, discussing what types of options there are, how to buy options, and how to trade options. Of course, we'll also look at the risks.

Types of options

There are two main types of options: call options and put options. A call option gives the holder the right, but not the obligation, to buy an underlying asset (such as stocks) at a predetermined price (the strike price) on or before a specific expiration date. On the other hand, a put option gives the holder the right, but not the obligation, to sell the underlying asset at the strike price on or before the expiration date. Options allow investors to profit from rising (with call options) and falling (with put options) markets.

Buying Options

Buying options can be broken down into a few simple steps. First, you can open a trading account with a broker. Next, you need to research the options you are interested in. This includes analyzing the underlying asset, understanding market trends, and testing the suitability of the instrument. Once you are certain you want to trade options, you can select an options contract that meets your needs. before purchasing, it is crucial to grasp the strike price, expiration date, and premium of the option. Finally, you can buy the option by executing a transaction through your trading account.

Trading options
Options can be traded in a variety of ways. One of the most common trading strategies is buying and selling options to profit from price movements. Here, for example, an investor may buy call options if he expects the price of a particular asset to rise. Another strategy is option writing, in which an investor sells an option contract to receive the premium. However, this also carries an obligation to buy or sell the underlying asset if the option buyer chooses to exercise it.