Tuesday, July 17, 2018

What is an option? Why trade options?

What is an option?

Options are a versatile financial instrument for investors. They are also complex and somewhat risky. It's important that you understand the basics of options trading strategy before diving in.

Options are contracts that give you the right to buy or sell an asset at a fixed price (strike price) for a specific period. That period could be as short as a day or as long as a couple of years, depending on the option. The seller of the option contract is obligated to take the opposite side of the trade if and when the owner exercises the right to buy or sell the underlying asset.

Why trade options?

If you'd like to expand your repertoire of trading strategies and potentially profit from market trends, options can come in handy. With options, it's possible to profit whether stocks are going up, down, or sideways. You can use options to cut your losses, protect your gains, and control large chunks of stock with a relatively small cash outlay.

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