The world is an exciting options. Unfortunately, many traders stock market and the investors lose Out to trade options, because they do not understand how they work. It is understandable. When someone explains your options for the first time, you might shake your head and decide to stick with hedge funds. However, as something that is worth to know, when you do the research, the rewards far outweigh the effort.
So, in an effort to help people gain a better understanding of options, we will present a series of articles, starting from the beginning and that covers many issues related to trade options so check back regularly.
So to start, what are the options? The official definition of an option can go something like this:
The right, but not the obligation, to buy (call option) or sell (for right) of a specific amount of a given stock, commodity, currency, index or debt at a specified price (strike price) within a specified time interval.
Wow, good helpful.Okay, let's try to break it in simpler terms. first, let's take the Department concerning a given stock, commodity, currency, index or debt. Let's simplify it by saying that we have the opportunity to buy and sell options for many things. You can purchase an option for a stock like IBM, goods such as gold, a currency such as the US dollar, an index such as the S & P 500 or debt as a bond. Both for the purposes of finishing our description of a selection, we will use ... your car!
Then, for a specific period of time ".Let's describe it by saying that the options are contracts that expire, for example, tell me you said that you could buy your car from you for the next two weeks to $ 500. If you wait more than two weeks, well, you may have to pay more. So we have a contract that expires in two weeks. Simply, this contract which I have just described is a choice! This is the option to buy the car from you, $ 500 for the next two weeks.
Said another way, I have the right, but not the obligation, to buy the car from you for the next two weeks.Why the right, but not the obligation to Sign a contract?.This gives me the right to buy your car to $ 500.But if I choose not to, that's okay.You may have to pay more after two weeks, but may also choose not to buy at all.
An option is the right, but not the obligation, to buy something at a specific value for a specific period of time. "This is the underlying now may ask yourself, "why I should like to give you the right to purchase my car to $ 500 for the next two weeks, if someone can come and give me $ 1,000?" the answer, because I want to tell you! so called "buy" what do I get this option is that I can check the car for the next two weeks! I can find a buyer for $ 1000 buy from you for $ 500, and sell profit immediately.
In summary, an option is a contract to purchase an underlying at a value for a specified period of time.
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