An option is a contract that is allowing an investor to buy or sell an underlying instrument like a security, ETF, or even index at a predetermined price over a certain period. Buying and selling options are completed on the options market, which options trading is contracting based on securities. The buying option is allowing you to buy shares that are called a call option. whereas the buying option is allowing you to sell shares that are called a put option. There are two different kinds of options such as call and put options. These are giving the investor the right to sell or buy securities.
- Call Options
- A call option is a contract that is giving the investor the right to buy a certain amount of shares of a certain security or commodity at a specified price over a certain amount of time. A call option would be allowed a trader to buy a certain amount of shares of either stock, bonds, or even other instruments like ETFs or indexes at a future time.
- You are paying to buy the call option that is called the premium. The premium of the call option is sort of a down-payment and you would be placed on a house or car.
- When you are purchasing a call option, you can agree with the seller on a strike price, and you are given the option to buy the security at a predetermined price.
- Put Options
- Conversely, a put option is a contract that gives the investor the right to sell a certain amount of shares like NYSE: KWAC.U of a certain security or commodity at a specified price over a certain amount of time. A put option allows the trader the right to sell a security by the contract’s expiration date.
- Put options are operating to calls, except you are wanted the security to drop in price if you are buying a put option to make a profit.
Long vs. Short Options
- Options trading is typically long meaning you are buying the option with the hopes of the price going up. However, even if you buy a put option, you are still buying a long option.
- The shorting option is selling that option, but the profits of the sale are one of the limited to the premium of the option – and, the risk is unlimited. For both call and put options are more time left on the contracting the higher and the premiums.
Disclaimer: The analysis information is for reference only and does not constitute an investment recommendation.