What is Options Trading

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What is options trading?
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Introduction

• An option is an agreement that allows (but
  doesnt mandate) trading between two parties to
  buy or sell or trade instruments like securities,
  ETFs, or index funds at a fixed cost and in a
  specified period. This market is called as
  options market. There are two types of options
  call and put option. The call option is referred
  to when the investor wants to purchase financial
  instruments in the future. Contradictory to this
  put option is when the trader sells the share in
  the option contract.
• We will further understand what is options
  trading.

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How options work?

• If purchase any share, whose price prediction
  will yield profit in the future. In this
  investment strategy, you must buy the stock at a
  lower price and later sell at a higher price to
  gain profit.
• But this prediction can go wrong due to the
  volatile and unpredictable markets nature. To
  save yourself from such potential losses, you can
  add the put option to the agreement which lets
  you sell the share at the predetermined price.
• However, it is necessary to carry out this deal
  before or on the expiration date.

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What is options trading

• Options trading enables you to purchase or sell
  securities at a predetermined price within a
  pre-decided period. In options trading, buyers
  have the privilege and flexibility of not
  purchasing the security at the specified price
  before the expiration period.
• The concept of options trade is a bit complicated
  than stock trading, but with the help of options,
  you can yield larger profits if the price of the
  stocks goes higher. In options trading, you dont
  have to pay the full price for the security.
  Similarly, options trading can protect you from
  losses if the price of the security goes down,
  this is called hedging.

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Terms related to options trade

• Strike Price The predetermined value of the
  stock at which it will be bought or sold in the
  future.
• Open Interest Open interest refers to the total
  number of option contracts that are currently out
  there in the market at any given point in time.
  Open Interest for a contract becomes zero past
  the expiration date.
• Strike Price Intervals An option contract can be
  sold at different strike prices all these
  different strike prices are referred to as strike
  price intervals. These prices are decided by the
  exchange on which the securities or assets are
  traded.
• Lot Size The Lot size indicates the set of units
  of the underlying asset that are part of a single
  contract. The typical lot size depends on the
  stock and is determined by the exchange on which
  the stock is traded.

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Conclusion

• To sum up we understand the meaning of Options
  and understood the basics of options trading.
• You should learn about derivatives even more to
  get a hold on the concept and become an active
  trader in the derivative markets.

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THANK YOU