As we mentioned in the section above, options trading is the trader’s right to buy and sell an asset at a particular price in a certain period of time without having any obligations place on you to hold to the agreement. Different situations will cause you to either decide to continue with the option or to let the option expire.
- In order to start your investment journey in using options, you need to know what options actually are.
When you are looking at options, you have the choice to purchase speculatively or as a hedge. The speculative investments will allow the trader to make a significant amount of money. However, this choice means that you need to be able to predict the timing, direction and the magnitude of the security’s price movement. This trade also will open
up a lot of losses, but high trade commissions.
Speculative trading is a risky move for any novice trader. When you look at it, options can be used as a strategy in order for you to protect your investments. For example, if you take out an option when trying to sell your stock, you are only going to lose the contract price should the market fall. Make sure that you understand the types of trades there are. The calls and puts are both trades where the trader will have the right to buy or sell at a predetermined price within the defined time frame.
- It is important that you know the terminology that you are going to need in order to make trades properly. In understanding these words, you will be able to find out when you need to hold or sell your trade.