How to trade stocks with call and put options?

How to trade stocks with call and put options?

Why one may consider options trading?
One may consider options trading to generate income, to hedge his or her portfolio, and to speculate the next price move.

What is a call option?
A call option allows the option buyer the right, but not the obligation to buy a security at a predetermined price within a specific time period.

What is a put option?
A put option allows the option buyer the right, but not the obligation to sell or sell short the specific security at a predetermined price within a specific time period.

Why options trading involves substantial risks?
Options are financial contracts with a predetermined expiration date. Options have a time decay factor. At the expiration date, option holders have to make a decision. Options holders may exercise the options if the options are in-the-money, to sell the options at the market values, or faced a capital loss if the option is out-of-the-money or may be completely worthless.

How to read the option quote? Just an example.
1 Call XYZ March 17, 2021 140 Call $5

XYZ is the symbol for the underlying security.
March 17, 2021, is the expiration date.
$140 is the strike price. The strike price is the price at which the underlying security may be brought for call options. The strike price is the price at which the underlying may be sold for put options.
$5 is the premium. Premium is how much it will cost the trader to purchase the option.
One option equals 100 shares of the underlying security.

Thank you for reading!

Greenfield












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Disclosure: Article written by Greenfield. A market idea by Greenfield Analysis LLC for educational material only. The option quote in this article is not real. The option quote was just a makeup example.