options

Trading in options

Trading in options

Options are quite popular among private investors. These derivatives are very unusual, so the options trading requires good preparation. Let's start with the definition of the option.

Option - it is designed in the form of a contract agreement between two parties giving the buyer the right to buy (sell) a certain amount of financial assets (stocks or currencies) at a certain time at a set price. In this case the right to purchase is not an obligation, as is the case with futures (which we consider later). Trading options involves the conclusion of the contract under which the seller must sell (buy) a specified amount of assets at an agreed price in advance. In options trading party buys the option, the seller pays a premium for this right to buy or not to buy (sell or not sell) the underlying asset at its discretion. Option "count" gives its owner the right to buy the underlying asset at a specified price at a fixed time interval. In this case, the option seller, "count" is obliged to sell the option holder the base product.

Option "put" gives its holder the right to sell a certain quantity of the underlying asset at a specified price (the strike) at any given time. In this case, the option seller "put" is obliged to buy the underlying asset.

As already mentioned, the buyer, when trading options, the seller pays a price for which sold, and the option. It is called the option premium. The award is a payment for the right deal in the specified option period.

Options come in two styles - European and American. European option can be exercised only in the specified date of execution it (expiration date). An American option can be exercised at any time before the expiration of the appointed time.

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