By Introduction to Options Trading Basic Concepts and Terminology
Options trading is a popular investment strategy that involves buying and selling options contracts. Options are financial instruments that give investors the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time frame. There are two types of options: call options and put options.
A call option gives the holder the right to buy an underlying asset at a specific price, known as the strike price, before the option expires. On the other hand, a put option gives the holder the right to sell an underlying asset at a specific price before the option expires.
Some key concepts and terminology to understand when getting started with options trading include:
– Strike Price: The price at which the underlying asset can be bought or sold when exercising an options contract.
– Expiration Date: The date by which the options contract must be exercised or it will expire worthless.
– Premium: The price paid for an options contract.
– In the Money: A call option is in the money when the underlying asset’s price is above the strike price, and a put option is in the money when the underlying asset’s price is below the strike price.
– Out of the Money: A call option is out of the money when the underlying asset’s price is below the strike price, and a put option is out of the money when the underlying asset’s price is above the strike price.
– At the Money: When the underlying asset’s price is equal to the strike price.
Options trading can be a complex and risky investment strategy, so it’s important to thoroughly research and understand the basic concepts and terminology before getting started. It’s also recommended to consult with a financial advisor or professional to help navigate the world of options trading.