Simply put, option buyers are said to have rights and option sellers have obligations. Option trading buyers have the right, but not the obligation, to buy (call) or sell (put) the underlying stock or futures deal at a specified price until the 3rd Friday of their expiration month.
In order to participate in stock options trading, you must be familiar with the two kinds of options involved in options trading. The two kinds of options differ in what they give you the right to do with the underlying asset. The first kind of option is a "call option," which gives you the right to buy. The second is a "put option," which gives you the right to sell. Knowing and understanding the differences between option types and the way they work is key to every strategy you will learn from here on.
Since your risk is limited to the price of the option, there is in fact no margin obligation if you want to buy an option. On the contrary, option sellers receive a credit in their account when they sell an option and they keep that amount if an option expires valueless.
When you are going to be engaging in option trading, it is very important that you learn the proper terminology of the option market. Buying an option is called put and selling an option is called call. Option sellers have to put or call the underlying instrument if someone who owns the option exercises it.
A strike price is the buying or selling value of the underlying stock, if that option is exercised. Options are available in many strike prices both above and below the underlying assets current price. The strike prices will typically appear in 2 1/2 dollar intervals for a stock that is priced under $25 per share. The strike prices of stocks priced over $25 will generally appear in $5 intervals.
The expiration date occurs when an option concludes. For example, if a stock option is set to expire in a given month the expiration date would be on the 3rd Friday of that month. All of the stocks are going to have the same amount of cycles that options can be suggested in. Overall there are three cycles to choose from that have fixed expiration dates, which would leave a four-month gap in each phase. The technical indicator used most frequently is the MACD indicator which stands for Moving Average Convergence/Divergence.
There is more potential with option trading than with any other form of investment. Because the up-front cost of is lower than that of stock trading, one gets a high leverage means of investing that lessens one's risks significantly and can result in a significant financial gain. A call option is essentially the right to purchase the underlying asset at a specific price. A put options gives you the ability to sell the underlying asset at a specific price. You must understand the subtleties and challenges while doing stock options trading. The technical indicator used most frequently is the MACD indicator which stands for Moving Average Convergence/Divergence.
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