There are so many and different ways to invest in the stock market or share market, one of which is called option trading. An agreement between 2 parties called option which can be easily buy or sell by the parties. In this article, we will understand what an options calls and puts options.
What is an option?
An option is a financial contract or an agreement that gives the buyer the right to buy or sell an asset at a specific price within a specific time period. The agreement is happens between first and second means 2 parties – the buyer and the seller. A option buyers always buy the contract first and then whenever it is sold it is automatically transferred to sellers. Its a 0 sum game means 1 will pay from the pocket.
What is a call option?
A call option is a amount or a premium you pay when you expect a upside move and pay a less premium for it which can be sold easily. Lets suppose the LTP latest trade price means which price is now, of any option or stock is ₹10, and you will have to buy a call option that gives you to buy this at ₹11. If the stock price rises to ₹ 12, you can exercise this option to buy at ₹ 11 and make a profit of ₹ 10.
What is a put option?
Put mean when you expect a downside move so you buy a put option means you are paying premium from your pocket for a downside move. For example, suppose the current price of a stock is ₹ 100, and you buy a put option that gives you the right to sell this stock for ₹ 90.
Advantages of Options Trading
There are many advantages to options trading. This gives you the opportunity to earn more profit with less capital. In addition, you can also use options to protect your investment from risk. For example, if you think that the stock price may fall, you can protect your investment by buying a put option.
What is an option premium and what does it mean?
When you buy a call or put option, you have to pay a fixed amount of money for it, which is called the option premium. This amount called premium is paid in terms of authorization that allows you the authority to buy or sell a option contract at any price at any time as per market conditions. If the market moves in your favor, this premium can turn into a big profit, but if the market moves against your expectations, you can lose this premium. This is why it is very important to estimate the right time and the right direction in options trading.
How good is option trading for new investors?
If you are new to the stock market, you need to have a basic understanding of it before starting option trading. It is not worth buying options based solely on emotions or the advice of others. At first, you can gain experience by making small trades, practicing on a virtual trading platform and gradually understanding how options work. Over time, as your experience grows, you can move on to larger trades. But it is better to act thoughtfully and within limits at first.
