What Are Option Trades?


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In the world of finance, an option is a contract that gives the owner–the buyer–the right to buy or sell an underlying asset or instrument at a specific strike price on or before a certain, specific date. The seller has the corresponding obligation to fulfill the transaction if the owner/buyer exercises the option. The owner pays a premium to the seller for that right.

There are two kinds of options: calls and puts. Calls are the kind of option that allows the owner the right to buy something at a specific price. Puts are options that convey the right of the owner to sell something at a specified price. While many financial professionals buy and sell both of these in their options trading systems, the most common kind of option is the call, and is usually what people are referring to when they discuss option trading systems.

Now, there are two kinds of option trade strategies: bullish and bearish.

Bullish option trades are employed when the trader expects the underlying stock price to move upwards. It’s necessary to asses how much the stock price can rise and the time frame for which the rally will occur so that the option trader can select the best trading strategy possible. The most bullish of all option trade strategies is the simple call buying strategy that most novice option traders use. That way, the maximum amount of capital can be gained.

Bearish option strategies are, as you can probably infer, the opposite of bullish. These are employed when the option trader expects the underlying stock price to go downwards. It’s necessary for them to asses how low the stock price will sink in the due time frame so that they can select the best trading strategy. The most bearish of option trade strategies is the simple put buying strategy. That way, any loss can be minimized.

Whether a bearish strategy or bullish strategy is best, option trades provide excellent opportunities for any investor. If you have any questions, feel free to ask in the comments. More: tradegreeks.com

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