The value of stock options is based on the market value of the stock. At the time when an option is sold, there is a contract between a seller (who is also known as a writer) and a buyer. An option contract gives the buyer a freedom to either sell or buy from the writer of the stock in question. There are different types of options offered in the market. Options like binary options have gained a lot of popularity in recent times. Some of the important information regarding options trading and options trading strategies is given below.
Trading strategies have a great influence on the outcome of the stock option trade and it is important for every investor to trade with some working strategy. Security trading strategies are approaches regarding the investment that predict the outcome of buying or selling of securities.
A person who thinks that the value of the stock is going to go up is referred to as bullish party. He is the one who put a lot of money on stocks and can profit if the market actually goes up. They take long positions that benefit them if the price goes up. Bearish are the people who think that the stock will go down and they usually take short positions that would benefit them in short term if the value of the stock does go down.
A call option is an option that enables an investor to buy a specific stock at a strike price. An investor has to pay a fee for attaining this right and the right in in effect for a specific duration during which it can be exercised. If an investor who has bought a CALL option is bullish, then it would be reasonable for the investor to buy CALL option and wait for the price to increase in the specific duration. In this way he would be able to buy the stock at a discounted price.
A bearish party, on the other hand would want to implement the strategy to sell a CALL option on the stock. The call will not be exercised if the stock price goes down as expected and the seller would even be able to keep the premium. The call is referred to as naked call if the call seller does not own the stock. Although risky, but it is a possible move.
Put options which are opposite to call options are another type of options that are offered in financial market. Put options grant the put buyer a right to sell the stock to a put seller at a fixed price during a specific time period. Normally, bullish parties sell put options and bearish parties buy them. This is a very common scenario of the market.
Although there are many other intricate ways of trading, but all of the ways can be derived from the basic principle of trading, i.e., make profit by buying stocks at lower price and sell them at high higher price. There are risks of losing investment in this trade, and therefore people have to make decisions on the basis of some information. This type of trading should not be taken like gambling. With sufficient knowledge about some well-known strategies of stocks trading, you can learn this business and implement your own strategies to make profits on your investment.