What is Options Trading ?

1) What are Options?

• An ‘Option’ is a contract that permits (but doesn’t necessitate) an investor to purchase or trade instruments like securities, ETFs or index funds at a pre decided rate after a specified period.

• Selling and purchasing options are carried out in the options market. 

• An option that permits you to acquire shares sometime in the future is referred to as a “call option.” 

• An option that enables you to sell shares sometime in the future is a “put option.”

2) How Does Options Trading Work?

• When an investor or trader buys or sells options, they have the right to apply that option at any point before the date of expiration. 

• Simply purchasing or selling an option doesn’t require one to actually exercise it at the expiration point. Due to this structure, options are considered ‘derivative securities’. 

• In other words, the price is options is derived from other things like the value of assets, securities, and other underlying instruments).

3) Benefits of Options Trading

• Buying options requires a lesser initial expense than acquiring stock.

• Options trading lets investors freeze the price of their stock at a specified amount for a certain period.

• Options trading improves a trader’s investment portfolio through added income, leverage, and even protection.

• Options trading is inherently flexible. Before their options contract lapses, traders can employ various strategic moves.

4) How to Use Call & Put Options?

• A Call Option enables a trader to acquire a certain quantity of shares in either bonds, stocks, or other instruments like indexes and ETFs at any point before the contract expires.

• A Put Option contract gives the investor the opportunity to sell a specific quantity of shares of some underlying security, asset or commodity, at a pre decided rate before the contract expires.