When considering options, it’s useful to keep in mind they cover a lot of ground, proving useful as an income generating device, but also viable for hedging, speculation, as risk and asset protection, for a neutral strategy or a directional one. Calls and puts can be either bearish or bullish. The key is in whether you elect to sell them or buy them first. Basically, option buyers are imbued with specific rights, while sellers must assume certain obligations. An option differs from a stock, which is literally a small stake in a company. An option gives the buyer the right to purchase, although it is not an imperative, a product at an agreed upon price, for an agreed upon time. This constitutes a call. The same rules apply with a put, but everything agreed upon refers to a sell. As a buyer you can exercise your option, you can sell your option or simply let it expire. As a seller, you can buy the option back, allow it to expire or take an assignment, that is be required to buy or sell the product.
- Trading options can be a strategy that affords your portfolio extra protection during a market downturn.
- To begin trading options you will require a reputable brokerage firm, to evaluate your specific level of options training, approve you, potentially provide advice and ultimately broker trades.
- Purchasing options is different from buying stocks, for example you cannot buy options on margin, as is doable with stocks.
“There are so many available options and ways to trade them that you might not know where to begin. Getting started is easier than you think, once you determine your goals.”