Introduction to Options Trading
Discover what options are, how they work, and why traders use them for speculation and hedging.
💡 Key Takeaways
- ✓Options give rights without obligation
- ✓Calls = right to buy, Puts = right to sell
- ✓Options have strike prices and expiration dates
- ✓Used for speculation, hedging, and income
An option is a contract that gives you the right, but not the obligation, to buy or sell an underlying asset at a specific price within a certain time period.
Call options give you the right to BUY the underlying asset at the strike price. Put options give you the right to SELL at the strike price.
The strike price is the price at which you can exercise the option. The expiration date is when the option contract expires.
Options have two main components of value: intrinsic value (the difference between stock price and strike price) and time value (the potential for future movement).
Traders use options for speculation (betting on price direction with leverage), hedging (protecting existing positions), and income generation (selling options for premium).
Summary
- 1Options give rights without obligation
- 2Calls = right to buy, Puts = right to sell
- 3Options have strike prices and expiration dates
- 4Used for speculation, hedging, and income
Disclaimer: This content is for educational purposes only and should not be considered financial advice. Always do your own research and consult with a qualified professional before making investment decisions.
