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Short Trading Options. Call options are contracts to buy a stock, while put options are contracts to sell. A trader can begin the options trade by either buying — “going long” — or selling ...
Conversely, buying to close is when you purchase an existing options contract that matches a contract you sold. In doing so … Continue reading → The post Buy to Open vs. Buy to Close ...
Trading options is generally more complicated than trading stocks, so you must know a few key things before diving in. If you want to trade options, be sure to avoid these common mistakes.
In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.
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.
In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the underlying), at a specified price (the strike), by (or on) a specified date (the expiry or maturity) to the writer (i.e. seller) of the put.
The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
An alternate name is "alligator spread," derived from the large number of trades required to open and close them "eating" one's profit via commission fees. Box spreads are usually only opened with European options, whose exercise is not allowed until the option's expiration. Most other styles of options, such as American, are less suitable ...