A Beginners Guide To Options Trading

If you are new to the world of the stock market, along with other securities, you have the choice of ‘Options’ as well. Options are the derivative security that can be sold or bought at a specific price within the specified time.

Why it is classified as the derivative security because the price of the options is intrinsically linked to the price of something else. In simple words, a derivative is a security with a price derived from one or more underlying assets. The underlying assets include currencies, stocks, bonds, and market indexes.

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Options is a contract between two or more parties and its value is fluctuated by the price of underlying assets. Options grant the right to the trader to buy and sell the underlying assets at the fixed price. To make profits, the best options strategy has to be figured out by the trader through extensive research.  

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A ‘Call option’ is the term used when a trader buys options. Whereas ‘Put option’ is the right to sell the option. Before you start options trading in stock market, you need to understand the option terminology.

Traders who buy options are called holder and the one who sells options is called writers. The price at which options bought or sold is called strike price. The date of termination of the contract termed as the expiration date.     

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Iron condor option strategy is widely used by the options trader to make consistent profits. Options give the right to call holder and put holders to buy and sell the assets but they are not obligated to buy or sell.

In simple words, they can exercise their options but cannot sell it. It eliminates the risk of the buyers to lose their premium. On the other hand, option writers are obligated to buy or sell. Therefore they can lose money more than the price of the options. You can also browse this website to know more about the options trading.