Options Trading Explained in 5 Easy Steps
Arguably, options trading are like the enigma of the stock market.
It is a means to earn money, which is presented in not-so-clear terms.
Initially, the idea of options trading explained in a phrase would mean cash or profit.
However, this is not that easy to achieve.
Clearly, to have options trading explained in five easy steps is like attempting to tread muddy waters.
For beginners, the introduction of premiums, call or put options, time value and volatility is like giving a math exam to an English junkie.
In short, there more terms are produced, the lesser the comprehension.
So, what is option trading? For the laymen, how can you introduce premium, put, call options, expiry dates and periods effectively? Here's a chance to read on and learn further.
Step 1: What is option trading? Option trading is like giving out cash in exchange for potential profit.
You buy assets or things of value, with hopes of generating income in the end.
Step 2: Does it involve a contract? Yes.
Options are contracts between two parties, the buyer and the seller.
The seller transfers to the buyer, rights to purchase or sell an underlying asset.
By entering into this contract, the two parties expect to conform and apply what is being defined in the contract as terms including the price (premium) and period of validity (expiration date).
Step 3: What are put and call options? Put options give the owner the right but not the obligation to sell underlying assets at a specific price before expiration period.
Call options, on the other hand, give its owner the right but not the obligation to buy an underlying asset at a specified price before the date of expiration.
Step 4: How do you trade options? Options, be it a call or put option, is bought or sold on registered exchanges.
You deal with buyers and sellers of options/stocks, hoping to bring in more profits.
Registered exchanges include the famous NASDAQ and New York Stock Exchange, where option buyers and sellers meet to do business.
Step 5: How do you make money in Options Trading? This attempt to have options trading explained in an easier and understandable manner, won't be complete without mentioning profits.
Naturally, a person who invests valuable cash to some form of asset or investment always expects to earn income from it.
In options trading, money is generated by means of selling your options to other traders.
Others opt to deal with brokers, asking them to sell their underlying stocks to another party.
Your profit is basically the difference between the price you paid in originally acquiring the option and the selling price, less brokerage fees and expenses.
It is a means to earn money, which is presented in not-so-clear terms.
Initially, the idea of options trading explained in a phrase would mean cash or profit.
However, this is not that easy to achieve.
Clearly, to have options trading explained in five easy steps is like attempting to tread muddy waters.
For beginners, the introduction of premiums, call or put options, time value and volatility is like giving a math exam to an English junkie.
In short, there more terms are produced, the lesser the comprehension.
So, what is option trading? For the laymen, how can you introduce premium, put, call options, expiry dates and periods effectively? Here's a chance to read on and learn further.
Step 1: What is option trading? Option trading is like giving out cash in exchange for potential profit.
You buy assets or things of value, with hopes of generating income in the end.
Step 2: Does it involve a contract? Yes.
Options are contracts between two parties, the buyer and the seller.
The seller transfers to the buyer, rights to purchase or sell an underlying asset.
By entering into this contract, the two parties expect to conform and apply what is being defined in the contract as terms including the price (premium) and period of validity (expiration date).
Step 3: What are put and call options? Put options give the owner the right but not the obligation to sell underlying assets at a specific price before expiration period.
Call options, on the other hand, give its owner the right but not the obligation to buy an underlying asset at a specified price before the date of expiration.
Step 4: How do you trade options? Options, be it a call or put option, is bought or sold on registered exchanges.
You deal with buyers and sellers of options/stocks, hoping to bring in more profits.
Registered exchanges include the famous NASDAQ and New York Stock Exchange, where option buyers and sellers meet to do business.
Step 5: How do you make money in Options Trading? This attempt to have options trading explained in an easier and understandable manner, won't be complete without mentioning profits.
Naturally, a person who invests valuable cash to some form of asset or investment always expects to earn income from it.
In options trading, money is generated by means of selling your options to other traders.
Others opt to deal with brokers, asking them to sell their underlying stocks to another party.
Your profit is basically the difference between the price you paid in originally acquiring the option and the selling price, less brokerage fees and expenses.
