Options Basics: Means of safeguarding Stocks
An option refers to a contract where an investor can buy or transact sells in a specified financial investment or a stock. The stock is also referred to as the underlying instrument and the contract has a definite price known as the strike price. This price establishes how the contract will be transacted upon. An option carries an expiration date which dictates the value of the stock upon expiration this value is lost and so transactions have to be carried out within the limitation period given. Investors have two choices when buying or selling options, they are available in two classes namely,
Binary options is as sports betting and gambling : you need to predict price and you will earn money.
The Put Option
A put option gives the power to sell underlying stock at the material time before it expires. An investor also has a right to sell an option to another party in the course of its term or before its expiration date. A selling to open option mandates the writer to perform his part of a contract when the holder of the option wishes to exercise his right to sell. When put options are sold in the form of an opening transaction the writer is obligated to purchase the inherent interest if it is assigned.
A call gives the right to engage in buying or selling a stock at the specific strike price at a certain duration before expiration time. The holder of an option has a right to sell it to another party or let it reach expiration and lose value. When a call option gets sold, the seller becomes obligated to transact the underlaid interest at its strike price. Call options are bought when an investor anticipates price for a security to rise before it reaches expiration time.
A premium is the term referred to the purchase price when buying an option, when selling the premium is termed as the amount received. A premium is never constant it varies from low to high depending on current market changes. When buying options the process starts with a procedure called net debit implying that money spent on the transaction has no guarantee of being obtained when the option is not sold profitably or if it is never exercised at all. For a seller it is termed as a net credit since the premium is collected when the option is not exercised and the money remains intact. If the option gets to be transacted you remain with the premium but d to buying or selling a stock if it is assigned.
Basically value of options is determined by a measure of their worth as to whether they elicit interest or loss on the strike day or before expiration. Time value becomes the determining factor the longer the time stretches to accommodate higher market prices the greater the margin value . Market chains affect trading options and the prices pegged at any specific strike price. Investors use options as a means of gauging how a particular security move in the market , by considering the volatility of the security and the value it elicits as it moves within the money market, all calculations are based on finding the best time to sell and earn profit.