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Great Sites:
Index-Day-Trading
QQQQ-Market-Timing
Trading-Glossary
TradersFloor
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Stock Options Overview.
An option, when purchased, gives the buyer the
right, but not the obligation, to buy or sell a specific amount of
a specific commodity at a specific price within a specific period
of time. By comparison, a futures contract requires a buyer or
seller to perform under the terms of the contract if an open
position is not offset before expiration.
The decision to exercise the option is entirely that of the buyer.
The purchaser of the option can lose no more than the initial
amount of money invested (premium). That is not the case, however,
for the buyer of a futures contract.
An option buyer is never subject to margin calls. This enables the
purchaser to maintain a market position, despite any adverse moves
without putting up additional funds.
- Options give you the right to
buy or sell a security.
- If you a buyer you have the
right to buy or sell the underlying security at a specified
price.
- An option seller you have the
obligation before a buyer.
- There are two type of options:
- calls - give you the right
to buy the underlying security.
- puts - give you the right
to sell the underlying security.
- Each option corresponds to 100
shares of underlying security.
- The price of options depend on
several factors:
- current price of the
underlying security
- strike price of the option
- time remaining until
expiration
- volatility.
- Strike Price. The price
at which an underlying security can be purchased or sold if the
option is exercised.
- Expiration Date. The
date the option expires (3rd Friday of the expiration month).
Each option has an expiration day and after that date you lose
your right to buy or sell the underlying security at the
specified price.
- Premium. The price of
the options. If option costs $3 then total premium is $300 (100
shares).
- Options are not available on
every stock.
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| RISK STATEMENT:
The trading of stocks, futures, commodities, index futures or any other
securities has potential rewards, and it also has potential risks
involved. Trading may not be suitable for all users of this Website.
Analyst research available through this Website does not constitute a
recommendation or a solicitation any particular investor should purchase
or sell any particular securities. Past performance is not necessarily
an indication of future performance. You absolutely must make your own
decisions before acting on any information obtained from this Website.
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