{"id":1995,"date":"2018-08-12T10:10:16","date_gmt":"2018-08-12T09:10:16","guid":{"rendered":"http:\/\/www.wasteyourtime.co\/?p=1995"},"modified":"2021-10-13T11:20:10","modified_gmt":"2021-10-13T10:20:10","slug":"what-are-options","status":"publish","type":"post","link":"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/","title":{"rendered":"Options &#8211; What Are Options and How To Use Them"},"content":{"rendered":"<p style=\"text-align: right;\"><i><span style=\"font-weight: 400;\">2 min read<\/span><\/i><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-1997\" src=\"http:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/what-are-options-2-e1534064441958.jpg\" alt=\"What Are Options 1\" width=\"700\" height=\"467\" \/><\/p>\n<p>Contracts that grant the right but not the obligation, to buy or sale of the underlying asset to which they relate at the price indicated in the option contract until a certain date.<\/p>\n<p>They\u00a0<span style=\"font-weight: 400;\">can be issued on the basis of other financial instruments, financial non-material or real property. But behind each option must stand the asset to which the option is related. <\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_74 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#The_historical_findings\" >The historical findings<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#Options_are_a_very_useful_financial_instrument_because_of_their_characteristics\" >Options are a very useful financial instrument because of their characteristics.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#The_right_to_buy_is_a_call_option_and_the_right_to_sell_is_a_put_option\" >The right to buy is a call option and the right to sell is a put option.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#The_benefits_of_options\" >The benefits of options<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#The_brief_review_of_options_basics\" >The brief review of options basics:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/traders-paradise.com\/magazine\/2018\/08\/what-are-options\/#Option_contracts_usually_represent_100_shares_of_the_underlying_stock\" >Option contracts usually represent 100 shares of the underlying stock.<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"The_historical_findings\"><\/span><strong>The historical findings<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">There are historical findings that confirm their use during the Antiquity period. (<\/span><i><span style=\"font-weight: 400;\">The first options were used in ancient Greece to speculate on the olive harvest<\/span><\/i><span style=\"font-weight: 400;\">.) <\/span><\/p>\n<p>But the fact is, trade options made great prosper in the last 50 years.<\/p>\n<p><span style=\"font-weight: 400;\">The most significant event that enabled their popularization was the establishment of the first arranged stock exchange option in Chicago in the year 1973. And under the name of the Chicago Board of Options. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since then, a number of stock options have been established in the US and around the world.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Options_are_a_very_useful_financial_instrument_because_of_their_characteristics\"><\/span><b>Options are a very useful financial instrument because of their characteristics.<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">They offer investors a range of options. Traders and investors can use options as an instrument for speculation, Also for the protection and management of market risks (hedging) or for arbitration. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this way to any investor in accordance with its goal of trading, current market position, expectations, and preferences. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to the risk and personal preferences, options can create the desired position.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_right_to_buy_is_a_call_option_and_the_right_to_sell_is_a_put_option\"><\/span><strong>The right to buy is a call option and the right to sell is a put option.<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Once again, options are the type of derivative. People a bit familiar with derivatives may not see an evident difference between this definition and what a future or forward contract does.<\/span><br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-1996 alignright\" src=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options.jpg\" alt=\"What Are Options\" width=\"301\" height=\"168\" srcset=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options.jpg 301w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options-300x167.jpg 300w\" sizes=\"auto, (max-width: 301px) 100vw, 301px\" \/><br \/>\n<span style=\"font-weight: 400;\">To clarify this thing. Futures or forwards confer both the right and obligation to buy or sell at some point in the future. For example, somebody short a futures contract for corn and has an obligation to deliver real corn to a buyer unless they close out their positions before expiration. An options contract does not carry the same obligation, which is <\/span><span style=\"font-weight: 400;\">precisely why it is called an \u201coption.\u201d\u00a0<\/span><\/p>\n<p><b><i>Once again, options are a great way to add flexibility to your portfolio since they can be used for both hedging risk and speculation.<br \/>\n<\/i><\/b><\/p>\n<p><a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/03\/trading-options\/\">Learn more to understand the World of Options<\/a><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_benefits_of_options\"><\/span><strong>The benefits of options<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><a href=\"https:\/\/traders-paradise.com\/recommends\/city_index_uk\/\" target=\"\" rel=\"noopener noreferrer\"><br \/>\n<img decoding=\"async\" class=\"size-full alignright\" src=\"http:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/ads5-2.png\" alt=\"\" \/><\/a><span style=\"font-weight: 400;\">The benefits that options offer are high profitability, risk limitation, financial leverage, flexibility. And, which is important too, the ability to stay on the market without the need to own a marketable asset. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Unfortunately, the general public knows little about these instruments. So, part of the investors is not able to trade options because of ignorance about their use. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The options, like all derivative instruments, are complex in nature. And we have to know their capabilities and limitations. So that we can effectively use them for the stated purposes. <\/span><\/p>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/traders-paradise.com\">Trading<\/a> with options is also specific and differs from trading with conventional financial instruments. That&#8217;s why the investor needs to be well aware of trading rules with options.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"The_brief_review_of_options_basics\"><\/span><b>The brief review of options basics:<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b><i>1)<\/i><\/b> <b><i>An option is a contract<\/i><\/b><span style=\"font-weight: 400;\"> which brings to its holder the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) shares of the underlying security at a specified price (the strike price) on or before a given date (expiration day). <\/span><\/p>\n<p><span style=\"font-weight: 400;\">After this given date, the option ceases to exist. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The seller of an option is, in turn, obligated to sell (in the case a call) or buy (in the case of a put) the shares to (or from) the buyer of the option at the specified price upon the buyer\u2019s request.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Option_contracts_usually_represent_100_shares_of_the_underlying_stock\"><\/span><strong>Option contracts usually represent 100 shares of the underlying stock.<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b><i>2) Strike prices <\/i><\/b><span style=\"font-weight: 400;\">or exercise prices. These are the stated price per share for which the underlying security may be purchased in the case of a call or sold in the case of a put. By the option holder upon exercise of the option contract. The strike price, a fixed specification of an option contract, should not be confused with the premium. That is the price at which the contract trades, which fluctuates daily.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-2000 alignleft\" src=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options-4.jpg\" alt=\"What Are Options 3\" width=\"310\" height=\"199\" srcset=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options-4.jpg 310w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2018\/08\/what-are-options-4-300x193.jpg 300w\" sizes=\"auto, (max-width: 310px) 100vw, 310px\" \/><span style=\"font-weight: 400;\">Equity option strike prices are listed in increments of 21\/2, 5, or 10 points, depending on their price level.<\/span><\/p>\n<p><b><i>3) Regulation<\/i><\/b><span style=\"font-weight: 400;\"> to an option contract size or strike price may be created to account for stock splits, mergers or other corporate actions. Overall, at any given time a particular option can be bought with one of four expiration dates.<\/span><\/p>\n<p><b><i>4) Option holders<\/i><\/b><span style=\"font-weight: 400;\"> do not enjoy the rights due to stockholders.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">They don&#8217;t have voting rights, regular cash or special dividends, etc. A call holder must exercise the option and take ownership of underlying shares to be eligible for these rights.<\/span><\/p>\n<p><b><i>5) Sellers and buyers<\/i><\/b><span style=\"font-weight: 400;\"> in the exchange markets, where all trading is conducted in the competitive manner of an auction market, set option prices.<\/span><\/p>\n<p><a href=\"https:\/\/traders-paradise.com\/magazine\/2018\/07\/money-risk-trading\"><b>Risk Disclosure (read carefully!)<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>2 min read Contracts that grant the right but not the obligation, to buy or sale of the underlying asset to which they relate at the price indicated in the option contract until a certain date. They\u00a0can be issued on the basis of other financial instruments, financial non-material or real property. But behind each option [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":1999,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1017,1012],"tags":[352,353,354,355,356],"class_list":["post-1995","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-how-to-start-trading-beginners","category-traders-secrets","tag-option-holders","tag-sellers-and-buyers","tag-strike-prices","tag-trading-options","tag-what-are-options"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Options - What Are Options and How To Use Them - Traders-Paradise<\/title>\n<meta name=\"description\" content=\"Options are the type of derivative financial instruments (security). 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