Options trading has been gaining popularity among equity trading investors in recent years. However, options trading is considered complex and risky, especially for amateurs and beginners.
Here is your helpful guide to options trading for you.
What is Options Trading?
Options trading is the trading of instruments like stocks, commodities, index, forex, and exchange-traded funds (ETFs) at a specific price within a particular date. It gives you a right to buy or sell at that price before the expiry of the options contract. However, there is no obligation to buy or sell – it is just the right you hold or exercise
You can do options trading in the Indian as well as US stock market. There are four standard terms you should know in options trading for clarity:
Option Buyers: These are people who buy the right to exercise their rights on the seller (also called a writer). They have to pay a premium to avail of the rights. This premium acts like insurance.
Option Sellers/Writers: These are people who receive the premium from option buyers. They have to sell their instruments if the option buyers decide to exercise their rights.
Call Option: This is an option where the holder has a right but not an obligation to buy an instrument at a given price before the expiry date.
Put Option: This is an option where the holder has a right but not an obligation to sell an instrument at a given price before the expiry date.
The buyer of the option has Limited Risk and Unlimited Profit.
The seller of the option has Limited Profit and Unlimited Risk.
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