This article is to help people looking to get into options trading. This is an extremely complex market segment. So, as far as possible I have tried to simplify the idea to make it easier to digest and understand
If you don't understand the basics of trading options (most people) then can be a very quick way to lose a lot of money. Bearing in mind this is a very dangerous form of investment, I would like to explain what you mean exactly options transactions in a way that everyone can understand.
I hope that you can use this article to understand the meaning in greater depth and make money from options trading.
A concept of options Trading
Definition: an option is the right, but not the obligation to buy or sell an asset (shares, currencies or commodities) at a fixed price before a predetermined date. It is a binding contract with strictly defined conditions and properties.
Still confused? Fine lets you use an example to make a lot easier to understand the whole process.
Options Trading callout example
OK you can see a House for sale for $ 250,000 BUT don't have the money just yet but I have the funds to four months. You can talk to the owner explaining the situation and to work out a deal to pay $ 3000 now with the option to purchase the home to four months for $ 250,000.
Now at that time 2 things can happen
Scenario 1-The value of the House could be increased to 1,5 million dollars because they know that Frank Sinatra was born there. Now the owner has yet to sell your home for $ 250,000 as sold on option. This means that would then be allowed to do an instant profit of $1,247,000 ($ 1.25 million-$ 250,000-$ 3000).
But hold your horses ... ... ...
Scenario 2-you've got a survey that was home to be a structurally unsound and is full of dry rot and TERMITES. The House is useless in all but name. Now that you have purchased an option aren't any obligation to actually purchase the home. Instead of simply lose the $ 3000 value option.
What does This all Mean?
And there are two points to think about:
Point 1-when you purchase an option you have the right, but not the obligation, to buy something. It can allow only option expire and indicating the option becomes worthless. At this point all you lose is the initial investment.
Point 2-an option is simply a Convention that deals with the underlying asset. Why an option called a derivative is an option comes from something else. In our example the home was the underlying asset, but funding is typically a reserve.
Conclusion-options Trading 101
This explanation is just so you can understand the main Office online option trading. There are a lot more to learn, but too much information quickly leaves us confused especially when it comes to economics and markets. Consider article 101 Trading options a foundation to learn more.
There are Web sites to help you increase your knowledge. Just take a quick look at major search engines like Google to find relevant sites.
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