To allow you to better understand the benefits of trading Options, I want you to first understand some of the similarities and differences between Options and Stocks before explaining more about them.
Here are some similarities between them:
– Quoted options are securities, just like stocks. They operate like stocks, with buyers bidding and sellers bidding. They are actively traded on a listed market, just like stocks. They can be bought and sold like any other security.
On the other hand, the differences are as follows:
– Options are derivatives, unlike stocks. (That is, they get their value from something else, the underlying security.) They have expiration dates, but stocks do not. There is no fixed number of options, as there are options with shares available. Shareholders have a portion of the company, with voting and dividend rights, but Options do not transfer such rights to their owners.
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset (for example, a stock or an index) at a specified price on or before a specified date.
It is a security, like a stock or bond, that forms a binding contract with strictly defined terms and properties.
For starters, 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 The expiration date is the day the option is no longer valid and no longer exists.
I cover more trading basics and my advanced profit strategies in my options trading course.