Online Options Trading
By: Anne Durrell
Of course Online Options Trading does involve risks, but there are ways you can keep your trading practices conservative and minimize your risks at the same time as maximizing your profits.
Perhaps the primary thing to remember when you’re learning about Online Options Trading is that you should never jump into this market without taking time to understand how this potentially lucrative investing tool works.
What Is Online Options Trading?
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Online Options Trading is the act of buying the option to buy a particular stock or foreign currency or commodity at a point in the future but at today’s prices. You agree to buying the option to buy or sell an asset on a specific price on or before a certain date.
You’re not actually trading a stock or currency. You’re only buying (or selling) the option to buy ownership. This means you’re under no obligation to actually buy or sell the underlying asset you’ve chosen.
Calls and Puts in Online Options Trading
There are two types of options. These are called ‘calls’ and ‘puts’.
A call is when you have the option to buy a security, such as a stock or currency, for a specific price within a predetermined period of time. If you buy a call option then you want the security’s price to rise prior to the option expiring.
A put is when you have the option to sell a security for a certain price within a predetermined period of time. The idea with a put option is that you hope the price of your asset will drop prior to the option expiring.
How Does Online Options Trading Work?
If you place a call option, then you’re buying the option to buy asset, but you’re not obliged to actually purchase it. You are known as the holder of the option in this case.
However if you place a put option, then you’re selling the option to sell an asset, but once again since you weren’t obliged to buy it, you’re only selling your option, not the actual asset. The seller is known as the writer.
How Do I Profit from Online Options Trading?
You begin by placing a call option, making you the holder. In this example, we’ll say you’ve bought the option to buy a stock for 50 cents a share and your option expires in 30 days. At the end of that 30 days you notice thatthe stock price has increased to $1 per share.
Because you hold the call option to purchase that stock at the agreed price of 50 cents per share, then you can exercise that right to buy at the cheaper price and you already know the price has now gone up to $1.
This is just a simplified example of using Online Options Trading. You don’t have to buy those stocks. You could simply sell your option and let another trader buy the actual asset.
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