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Options Ins and Outs. An option is a contract giving an investor the right, but not the obligation, to buy or sell a stock or other asset at a set strike price by a certain expiration date ...
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Put option: A put option gives its buyer the right, but not the obligation, to sell a stock at the strike price prior to the expiration date. When you buy a call or put option, you pay a premium ...
The seller's potential loss on a naked put can be substantial. If the stock falls all the way to zero (bankruptcy), his loss is equal to the strike price (at which he must buy the stock to cover the option) minus the premium received. The potential upside is the premium received when selling the option: if the stock price is above the strike ...
The trader may also forecast how high the stock price may go and the time frame in which the rally may occur in order to select the optimum trading strategy for buying a bullish option. The most bullish of options trading strategies, used by most options traders, is simply buying a call option. The market is always moving.
The market price of an American-style option normally closely follows that of the underlying stock being the difference between the market price of the stock and the strike price of the option. The actual market price of the option may vary depending on a number of factors, such as a significant option holder needing to sell the option due to ...
The appeal of buying call options is that they drastically magnify a trader’s profits, as compared to owning the stock directly. With the same initial investment of $200, a trader could buy 10 ...
A long call ladder consists of buying a call at one strike price and selling a call at each of two higher strike prices, while a long put ladder consists of buying a put at one strike price and selling a put at each of two lower strike prices. [1] A short ladder is the opposite position, in which one option is sold and the other two are bought. [1]