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When trading options, traders must understand the dynamics of option pricing and how they work. For instance, indicators such as the delta, gamma, vega and theta of an option should be second ...
Here are three option strategies that new option traders should avoid and why. ... strategy’s large investment in options premiums. Why to avoid it: ... if the stock rises, the put expires ...
Buy put options on falling stocks. Put options rise in price when the underlying stock falls in price, and this basic option strategy gives the put owner the ability to multiply their money over ...
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 ...
An option holder may on-sell the option to a third party in a secondary market, in either an over-the-counter transaction or on an options exchange, depending on the option. 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 ...
Options are a short-term vehicle whose price depends on the price of the underlying stock, so the option is a derivative of the stock. If the stock moves unfavorably in the short term, it can ...
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