Understanding the components of option trading clearly outlines how much advantage a trader has. Without a doubt, people who have sufficient knowledge of a certain trade have better chances of profiting from it. In the same way, a trader who is knowledgeable in options trading has better control of his profits. In this article, three basic concepts will be presented. Let it be noted that the information covered here are intended for neophytes in options trading.
What is option trading?
Option trading is a category of trading stocks, bonds or any type of assets that acts more like a contract, which allows for liberty to buy or sell the asset but does not necessarily oblige the holder to exercise his powers within a certain period of time. In layman term, it simply means “buying” the right to buy or to sell an asset within a specified duration. It should be noted that buying the option is very different from buying the stock itself.
What are the types of options?
There are two types of options: the calls and the puts. Both of them work in exactly opposite principles.
The calls are options that provide the right for a holder to buy a...
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