Let's shoot towards basics of this type of trading which is practiced very generally and almost by every investor. In layman expression, it is known by "right" which means that you can sell or purchase (buy) shares in stock market easily based on the two most important factors:
- Predetermined price
- Pre-determined time ahead in the future.
The technical way to say such affairs is: To buy is "calls" or to sell is "put"
Let's explore Market Scenario for these
There are two categories of options well known by terms Call Options and Put Options. You must know about each attribute of Options trading.
- Call Options: These contracts completely provide owner his right for buying shares at already known prices and before expiration time period. This already known share price is also known as strike cost (price).
In case you are purchasing call option then, price that you pay is called option premium. It's your call options that make you rightfully worthy to buy that stock at its strike price and in case you do not go with your call power, then you will pay option premium.
The thing to jot about these is that its prices inflate only when market or instrument boost up.
- Put Options: These are the agreements which allow you rightfully to sell certain number of shares in the market at set price (popularly known as strike price) and that too before the fixed date lapses.
These are very useful in case when there is prediction about a great fall in share prices. These will ensure that shares prices are insured at the fixed amount set for selling.
Suppose there is an exceptional fall in share price then instead of worrying about it; use your options and protect its price by fixing on a particular selling price.
These are very beneficial at the time of risks; allows you to command over it.
These both options come very practical at the time of market risks i.e., when it is crashed due to some reason.
You have to be smart enough to overcome all the cons of this trading. So, here are some listed risks that come along with it.
- Time frame has to be taken care well as because this kind of trading loses its worth after the fixed date.
- There is a high possibility that investors can suffer value damage or their investment in a very short period of time so, they have to be very watchful about every associated thing.
It is therefore vital that you must deal with the risk factor to yield more!