When people have extra money they want to invest, they can do so by buying stock options. We hope this article can give you a basics on how stock options work.
First, what are stock options?
It is an agreement between the two sides. This agreement gives the buyer the right to buy or sell a share at a certain price. The buyer can exercise this right until the agreed deadline.
What gives a buyer the right to buy a share is called a “call”. The option that offers the buyer the right to sell the stock is called a “path”. And these options can be used at any time until the expiration date.
Stock options typically come in groups of 100 stocks. The group of 100 is known as “a lot”. And the price at which plots are bought or sold is known as the “strike price”.
Here is an example of a sales option:
Let’s say you want to buy a Ramey stock option. Let’s say the stock price is $ 210. So you buy one put option (which is equal to 100 shares) at a hit price of $ 200. And let’s say this option expires in six months.
If the price of Ramey shares falls to $ 190 before the expiration of six months, you can exercise your right to sell the option, which is equal to 100 Ramey shares at the original strike price of $ 200. You can do this at any time before the expiration date.
That is, when Ramey shares are $ 190 per share, you can buy 100 shares at a price of $ 190 and sell them for $ 200 per share. So you make a profit of $ 10 per share, even though the stock price has dropped.
Here is an example of a call stock option.
We use the example above from Ramey, in addition to buying a call option for $ 200. And let’s say this time the stock price goes up to $ 300. What you can do now is take advantage of your option to buy 100 Ramey shares for $ 200 and then sell them for $ 300!
Things to keep in mind:
If you buy a call option and the stock price never rises above the execution price, the option will be worthless when the expiration date is reached. And of course, this applies to the put option: if the stock price never falls below the execution price, the option will be worthless at the time of expiration.
And, of course, there is the price of the option itself. This is called the “premium” option.
There are many places where you can learn more about stock options. It is suggested that you go online to various websites that discuss stock and options trading before you get too involved. And be careful not to spend money you can’t afford to lose. Good luck!