OPTION TRADING GUIDE FOR BEGINNER 🔰
What Are Options?
Options are tradable contracts that investors use to
speculate on whether the price of an asset will be higher or lower at a
specific point in the future without actually buying the asset in question. For
example, traders can speculate with 50 options on the future direction of this
benchmark stock index, which is commonly understood as a proxy for the Indian
stock market as a whole. At first glance, options might seem a bit
counter-intuitive, but they're not as complicated as they seem. To understand
options, you just need to know a few key terms:
Derivative. Options are what are known as derivatives, meaning
they derive their value from another asset. Take stock options, where the price
of a particular stock determines the value of the options contract.
Call option and put option. . A call
option gives you the ability to buy a security at a specified price on a
specific date, while a put option allows you to sell a security at a future
date and price.
Strike price and expiration date. The
predetermined price mentioned above is the so-called strike price. Traders have
until the expiry date of an options contract to exercise the option at its
strike price.
Premium. The price
of buying an option is called the premium and is calculated based on the price
and values of the underlying securities.
Intrinsic value and extrinsic value.Intrinsic value is the difference between the strike
price of an options contract and the current price of the underlying asset. The
extrinsic value represents other factors outside of those considered in the
intrinsic value that affect the premium, such as: B. how long the option is
valid.
In-the-money and out-of-the-money. An option is said to be in-the-money (profitable)
or out-of-the-money (unprofitable) depending on the price of the underlying
security and the time remaining until expiration.
