Options Trading Guide: What Are Put & Call Options?

What are options and why are they needed

Four Advantages of Options

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Like stocks, options are financial securities. There are 2 types of options: calls and puts. Calls grant you the right but not the obligation to buy stock. If you are bullish about a stock, buying calls versus buying the stock lets you control the same amount of shares with less money.

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Options Trading Guide: What Are Put & Call Options?

Options Trading for Beginners: Strategies for Getting Started Puts and calls, strike prices and premiums, derivatives and spreads. Chris Davis November 20, Many or all of the products featured here are from our partners who compensate us.

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Getting started with options trading: Part 1

Our opinions are our own. Options can provide flexibility for investors at every level and help them manage risk.

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To see if options trading has strategy for binary options buy place in your portfolio, read through the basics of what options are, why investors use them and how to start trading.

What are options?

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An option is a contract to buy or sell a stock, usually shares of the stock per contract, at a pre-negotiated price and by a certain date. Just as you can buy a stock because you think the price will go up or short a stock when you think its price is going to drop, an option allows you to bet on which direction platform 24 opton binary options think the price of a stock will go.

  1. Bullish strategies[ edit ] Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards.
  2. 4 Advantages of Options
  3. If you want to start trading options, the first step is to clear up some of that mystery.
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  5. Call Options: Learn The Basics Of Buying And Selling | enemyremains.com
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Sell the contract to another investor. Let the option contract expire and walk away without further financial obligation.

Put options: Learn the basics of buying and selling

But options are useful for long-term buy-and-hold investors, too. Learn the differences between options and stocks Why trade options? Investors use options for different reasons, but the main advantages are: Buying an option requires a smaller initial outlay than buying the stock.

An option buys an investor time to see how things play out. An option protects investors from downside risk by locking in the price without the obligation to buy.

  • He has provided education to individual traders and investors for over 20 years.
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  • Understand the difference between puts and calls Learn the rights and obligations of buying and selling call and put options Understand the risk and reward profiles of long and short call and put options positions Options give traders, well, options.

You also can limit your exposure to risk on stock positions you already have. If the share price does indeed tank, the option limits your losses, and the gains from selling help offset some of the financial hurt.

The Basics of Option Prices

That education can come in many forms, including: Online options trading courses. One-on-one guidance online or by phone.

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Face-to-face meetings with a larger broker that has branches across the country. Even better, if a broker offers a simulated version of its options trading platform, test-drive the process with a paper trading account before putting any real money on the line.

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Consider what kind of contact you prefer. Live online chat? Phone support? Does the broker have a dedicated trading desk on call? What hours is it staffed? What about representatives who can answer questions about your account? Even before you apply for an account, reach out and ask some questions to see if the answers and response time are satisfactory.

Make sure the trading platform is easy to use Options trading platforms come in all shapes and sizes. They can be web- or software-based, desktop or online only, have separate platforms for basic and advanced trading, offer full or partial mobile functionality, or some combination of the above.

The Bottom Line Options are contracts that give option buyers the right to buy or sell a security at a predetermined price on or before a specified day. The price of an option, called the premiumis composed of a number of variables. Options traders need to be aware of these variables so they can make an informed decision about when to trade an option. When investors buy options, the biggest driver of outcomes is the price movement of the underlying security or stock.

Some things what are options and why are they needed consider: Is the platform design user-friendly or do you have to hunt and peck to find what you need? How easy is it to place a trade? Can the platform do the things you need, like creating alerts based on specific criteria or letting you fill out a trade ticket in advance to submit later?

How reliable is the website, and how speedily are orders executed? This is a high priority if your strategy involves quickly entering and exiting positions. Does the broker charge a monthly or annual platform fee? If so, are there ways to get the fee waived, such as keeping a minimum account balance or conducting a certain number of trades during a specific period?

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Some of the basics what are options and why are they needed look for: A frequently updated quotes feed. Basic charting to help pick your entry and exit points. Screening tools. Those venturing into more advanced trading strategies may need deeper analytical and trade modeling tools, such as customizable screeners; the ability to build, test, track and back-test trading strategies; and real-time market data from multiple providers.

Check to see if the fancy stuff costs extra. For example, many brokers provide free delayed quotes, lagging 20 minutes behind market data, but charge a fee for a real-time feed. Similarly, some pro-level tools may be available only to customers who meet monthly or quarterly trading activity or account balance minimums.

But because commissions provide a convenient side-by-side comparison, they often are the first things people look at when picking an options broker. A few things to know about how much brokers charge to trade options: The two components of an options-trading commission are the base rate — essentially the same thing as the trading commission that investors pay when they buy a stock — and the per-contract fee.

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Some brokers bundle the trading commission and the per-contract fee into a single flat fee. Some brokers also offer discounted commissions or contract fees based on trading frequency, volume or average account balance.

About the author: Chris Davis is a NerdWallet investing writer. He has more than 10 years of agency, freelance, and in-house experience writing for financial institutions and coaching financial writers.

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