Like other asset classes, you buy options through a brokerage account. A stock option, for example, is a derivative of a stock, and the option’s price will change as the stock’s price changes.Īn option contract typically represents 100 shares of the underlying stock, but they can be written on any sort or size of the underlying asset. Their value depends on the price of that other thing. Options are known as derivatives because their prices are derived from the price of something else. With options, you don’t own anything unless you actually buy the stock. Stocks represent ownership in a company, but options are just contracts that give you the right to buy or sell a stock at a certain price by a certain date.
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You can buy and sell calls and puts on the open market. A put option gives you the right to sell a stock. A call option gives you the right to buy a stock. What is options trading?Īn option is a contract that gives you the right (but not the obligation) to purchase or sell the underlying asset at a specific price by a certain date. While all investing carries a certain level of risk- stock options are particularly risky investments and highly speculative. If you really want to trade options it’s probably wise to only invest what you can afford to lose.
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While we typically advocate for passive investments we can’t ignore that options are one type of investment you could choose to buy. The market offers plenty of financial products to help you customize your investment strategy. When it comes to trading securities, you have a lot of choices.