Suppose you have signed insurance for your car, and you pay for it every month. For example, for two months, you pay 250$ and for four months. You pay 500$. So, the price increases with time. Stock options trading has the same concept which we use at stockkingoptions.com. It is much different from stock market equities. In simple words, investors buy stocks with the hope that their market price will increase in the future when they trade in Stock Options in Finance.
It would be indescribable if time worked against you. Well, stock options trading proceeds like that. There are different purposes of option and stock trading, and we’ll figure that out in our article.
If you are passionate about the difference between stock options and the market, you are at the right place.
What are Stock Market Equities?
As Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
An example of a laptop can be seen here. You purchased it for 30$, and now you want to sell it for 35$, to make 5$ profit out of it. The stock market has the same concept but a different approach.
In a stock market, you invest and buy a small-scale company. It can also be elaborated as stock market equity. There are two ways in which you can make money through your equity investment.
- By selling your share at a higher rate.
- From dividend.
Dividend
So, the question comes here. What is a dividend? The following pie shows that the dividend is part of the profit, which a company can invest in their business or pay the shareholders. Didn’t get it? We’ll explain more with an example.
For example, you have 1000$ of shares in a company. Suppose the company makes a profit of one million$ and decides to give a dividend of 5$. You’ll get 5000$ in a dividend. It is just that simple and easy to invest in.
Note: – Keep in mind that if the company is in the first stage, they decide to invest the money in their business to expand it.
What is Stock Options Trading?
We discussed how option trading steps toe to toe with time. It cannot be evident sometimes. Let’s wrap this up real quick.
Stock options trading is a lot different from stock trading. It does not give you an obligation but a right to buy or sell; these are the two options in this trading. For example, there is an excellent worth 100k.
If the government decides to structure an airport there, it raises to 200k. An investor will invest in buying the property but not take the risk. The buyer can pick up a token from the seller and purchase the property after a few months. The token is called option premium or option price.
- Buy (Option buyer)
- Sell (Option seller)
The option contract is assigned between two individuals. The buyer has the right to sell the property in the future at a fixed price.
Strike Price option
The second step in trading options is to determine the strike price. The put or call price is exercised through the strike price option. In other words, it is the option for traders from where they can opt to buy or sell the underlying security.
For example: – A buyer has bought a call from XYZ Ltd, at the SP of 100$. If the stock is trading at 85$ and there is a belief that the stock might get higher before expiry. The buyer can exercise the put or call option and gain profit.
