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Example: Stock X is trading for $20 per share, and a put with a strike price of $20 and expiration in four months is trading at $1. The contract costs $100, or one contract * $1 * 100 shares ...
Options offer income, hedging and ways to speculate based on market views. Dozens of different options trading strategies exist and can be tailored to fit a variety of investor needs and viewpoints.
Example: Stock X is trading for $20 per share, and a put with a strike price of $20 is trading at $1 and a put with a strike price of $16 is trading at $0.50. Setting up this trade costs $50 per ...
If the underlying stock's market price is below the option's strike price when expiration arrives, the option owner (buyer) can exercise the put option, forcing the writer to buy the underlying stock at the strike price. That allows the exerciser (buyer) to profit from the difference between the stock's market price and the option's strike price.
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 expected volatility of a stock influences the option’s premium, or the price the options trader pays for the contract. So understanding volatility will help you determine whether an option ...
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