Two Types of Options Trading
There are many trading businesses that one can engage today. One of the most common trading businesses is called option trading. Option trading is the buying or selling of option or contract of a specific instrument or underlying asset. But this option is just selling or buying the right of that specific instrument or asset. If the buyer exercises the option, the seller is then obligatedfulfill the transaction to buy or sell that instrument or asset.
There are two types of options trading for the buyer and seller of the option:
This option is for the buyer of the option to have the right to buy the specific instrument or underlying asset at a specific price. Call buyers are hoping that the market value of the instrument or asset that they are buying will go higher before the option expires.If this happens, they can gain a lot from it since they will only have to pay the agreed price on the contract even when the current value of the asset or instrument has doubled or tripled. But if the market value of the instrument or asset has decreased, the buyer has the right not to forgo with the transaction and they will just consider the premium that they paid for, a loss.
This option is for the owner of the option to have the right sell the instrument or asset at a specific price. The owner of the option has to think about the possibility of his asset or instrument to have a bigger market value in the future before setting a price. This is because if he sells his asset or instrument with a small amount at a given time, it will be the price to be paid for by the buyer of the option even when the market value of the asset or instrument has gone up. The put buyers are hoping that the market value of the asset or instrument will stay as is or decrease so that when they exercise the right of the option, they can buy it in smaller price. The owner should not drastically set a price without considering all possibilities so that he will not have any regrets after the transaction.
Option trading really is a risky business to enter especially when you are not well educated about it. You should first know all the basics of options trading before venturing on it and you also should be aware on the possible risks and losses that you might have when you do so. You should not enter into option trading without thinking of the losses that you might encounter because it can really happen especially when you are a newbie in the business. Just always learn from your loss and choose your trades well in the future. There’s an option trading blog that you can read to have more information about options trading found on the internet. Read about option trading strategies so that you will have a greater chance in being successful in option trading.
Author Bio – Kim Kliman is a veteran in the option trading industry. He has been in the option trading business for a long time now and have successfully made profits from it. He started his career a few years back and have faced obstacles along the way. But even so, these obstacles made him become the good trader that he is now. He is now a successful option trader.