To give you a better understanding of the benefits of options trading, I want you to understand some of the similarities and differences between options and stocks first before explaining them in more detail.
Here are some similarities between them:
– Listed options are securities, just like stocks. They trade like stocks, with buyers making offers and sellers making offers. They are actively traded on a listed market, just like stocks. They can be bought and sold like any other security.
However, the differences are as follows:
– Options are derivatives, unlike stocks. (That is, they derive their value from something else, the underlying security). They have expiration dates, but not stocks. There is no fixed number of options, as there are with available stocks. Shareholders own a share of the company, with voting and dividend rights, but options do not confer such rights on their owners.
An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset (for example, a stock or index) at a specific price. at the latest by a certain date.
It is a title, just like an action or an obligation, that forms a binding contract with strictly defined terms and properties.
To begin with, there are only 2 types of options namely call options and put options.
All options will have expiration dates. The expiration date is the day the option is no longer valid and ceases to exist.
I cover more trading basics and my advanced profit strategies in my options trading course.