When people have more money they want to invest, they can do this by buying stock options. We hope this article can provide you with the basics on how to choose which stocks work.
First, what are stock options?
It is an agreement between the two parties. This contract gives the buyer the right to buy or sell the stock at a certain price. The buyer may exercise this right until the expiration date agreed upon.
What gives a buyer the right to buy stock is called a “call.” The option that gives the buyer the right to sell the stock is called a “deposit”. And these options can be used at any time until the expiration date.
Stock options usually come in groups of 100 shares. A group of 100 is known as “lot”. And the amount of lots that are bought or sold is known as the “strike price”.
Here is an example of a stock option:
Suppose you want to buy a stock option for Ramey’s company. Suppose the stock price is $ 210. So you buy one stock (equivalent to 100 shares) for a strike price of $ 200. And let’s say this option expires in six months.
If Ramey’s stock price falls to $ 190 before six months expire, you can exercise your right to sell options, equal to Ramey’s 100 shares for the first strike price of $ 200. You can do this at any time before the expiration date.
That is, when Ramey’s stock is $ 190 per share, you can buy 100 shares in stock for $ 190 and sell them for $ 200 per share. So you make a $ 10 profit per share, even if the stock price goes down.
Now here is an example of a call stock option.
Let’s use the example of Ramey’s company above, except that you buy the call option for $ 200. And let’s say, in this case, the price goes up to $ 300. $ 300!
Things to keep in mind:
If you purchase the call option, and the stock price has never increased above the strike price, the option will be useless if the expiration date has been reached. And again, this holds a reserve option: if the stock price never goes below the strike price, the option will not be profitable at the expiration date.
And then, there is the cost of the election itself. This is called the “premium” option.
There are many places to learn more about stock options. It is recommended that you go online to various websites that discuss stock trading and options before becoming heavily involved. And please make sure you don’t spend money that you can’t afford to lose. Good luck to you!