When you Options Trading Singapore: Call and Put Options + Strategies, you are making a bet on how the underlying asset price will change.
You think that the price of a stock will go up. Then, you will buy a call option, which gives you the right to buy the stock by a certain expiration date at a set price, called the strike price.
If the stock price goes up above the strike price before the expiration date, you make money because you will be able to buy the stock for less than it is worth.
Now, what if you think the stock’s price will go down? In that case, you buy a put option like insurance against a falling investment. The put option lets you sell the stock at the strike price until a certain date.
If the stock price falls below the strike price before the expiration date, you make money because you have the right to sell the stock for more than it is worth.
As you can see, to make money with options, the price of a stock has to go above a certain level before a certain date. What if they don’t, though? In that case, you don’t use the option, and you lose the “premium” price you paid for it.
You can also sell options to buy and sell stocks you already own. However, when you sell an option, if the person who bought it exercises it, you must buy the stock at the strike price. So, you want to bet against the changes in price that the people who bought the options are hoping for.
So, you sell a call option if you think the price of a stock will stay below the strike price, and you sell a put option if you don’t think the price will fall below the strike price. If the buyer can’t use the option, the premium he or she paid you will be your profit.
What are the threats of trading options?
Since Options Trading Singapore: Call and Put Options + Strategies is a zero-sum game, it is much riskier than stock trading.
When you buy call or put options, you risk losing all the money you put down. In the worst case, if you can’t use any of your options, you lose all the money you paid in premiums.
Back to the property example, let’s say you bought the option for $5,000, but then you found out you didn’t have enough money to buy the flat. So you lose $5,000 and don’t have anything to show.
When you sell call or put options, you will have to sell your stocks if the buyer decides to use the option. Therefore, when you sell a call option, your risk is limitless, but when you sell a put option, your risk is limited to the value of your stocks.
Is trading options a good way to start out?
Options Trading Singapore: Call and Put Options + Strategies is a kind of derivative that is hard to understand and trade, so if you just signed up for your first broker, please, for the love of your favorite god or deity, stay away from it.
Options can be used as “insurance” by traders with a lot of experience. This means that they can be used to protect their portfolios from risks. For example, if you don’t keep a close eye on your stocks, you can choose options that last longer.