Option Trading Could Cost Less Than Stock Trading

by glory

Option trading is the most versatile trading instrument ever invented. Since option trading cost less than stock trading, they provide a high leverage approach to trading that can considerably limit the overall risk of a trade or provide additional income.

It can be said that option buyers have rights to buy and option sellers have a commitment contract to sell. Option trading purchasers have the right but no obligation to call or buy a definite stock or futures deal at a specific price until the end of the 3rd Friday of an option expiration month.

There are two kinds of options while doing option trading: calls and puts. Call options give you the right to purchase the underlying asset. Put options grant you the right to sell the underlying asset. It is necessary to become familiar with the inner workings of both while doing stock options trading. Every strategy you learn from this point on depends on your systematic understanding of these two kinds of options.

There are actually no margin requirements if you want to buy an option because your risk is restricted to the price of the option. In contrast, option sellers obtain a credit in their account for selling an option and also get to keep this amount if the option expires worthless.

Nevertheless, option sellers also have an obligation to buy (put) or sell (call) the underlying instrument if their option is exercised by an allocated option holder. For that reason, selling an option requires a healthy margin. While doing option trading, you must be acquainted with the select terminology of the option market. Read more

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