What are options ? what is option trading ? lets learn
Options are financial contracts that give you the right, but not the obligation , to buy or sell a stock at a fixed price before a certain date. Think of an option like booking a hotel room. You pay a small amount to reserve it, but you don't have to stay there if your plans change. Similarly, with an option, you pay a premium for the right to buy or sell a stock later. There are two main types of options: 1. Call Option (Betting the stock price will rise) A call option gives you the right to buy a stock at a fixed price. Example: Apple stock is trading at $200 . You buy a Call Option with a $205 strike price . You pay a $3 premium per share. Scenario A: Stock rises to $220 You can still buy the stock at $205 . You could immediately sell it at the market price of $220 . Intrinsic gain = $15 per share . After subtracting the $3 premium , your profit is about $12 per share (ignoring commissions and other costs). Scenario B: Stock stays below $205 If the stock ...