When someone buys an option, it’s like buying a lottery ticket. Options are sometimes called “wagers” because their value determines how much the underlying stock will go up or down.
You’re putting money down on something that hasn’t happened yet. If the price of the stock goes up or down in the way you predicted, then you’ll make money. If not, then you lose your money.
But options are more than just betting on whether stocks will move up or down. Different types of options with different rules and processes determine what happens if they expire worthlessly or if they’re exercised by their owner (meaning they decide to buy them).
Options are one of the stock market’s most complex and confusing parts. They’re also a great way to make money, so if you have a little time, we’ll walk you through everything you need to know.
What is an Option?
An option is an agreement between two parties: the buyer and the seller. The buyer has the right but not the obligation to buy (or sell) something at a specific price on or before a specific date. The seller has an obligation to sell (or buy) something at a specific price on or before a specific date.
Options are traded over-the-counter (OTC), which means they’re not traded on an exchange like stocks or bonds—they’re traded directly between two people who have agreed upon them beforehand.
Stock Options
Stock Options are a contract that gives the buyer the right to buy or sell a stock at a particular price within a specific time.
This contract can be used for two different reasons:
- To speculate on the future value of a stock. If you think the stock will go up, you can purchase options to buy it at a lower price than it’s selling now. If you’re right, you’ll make money when you exercise your option to buy at the lower price and sell it at today’s market price.
- To hedge against risk in your portfolio. If you own a lot of stocks in one industry but are worried about that industry’s prospects, then buying put options could protect your portfolio from falling too much if things don’t go well in that industry.
Why Would Someone Want an Option?
If you’re new to the stock market, you might wonder why anyone would want an option. After all, it seems like a complicated thing to buy. But options are a very straightforward way to invest in a company’s stock.
You’ve probably already heard of stocks: they’re shares of ownership in a company. If you buy stock in a company, you own part of that company and get some benefits like dividends (money paid out by a company to shareholders) and voting rights (the right to vote on specific issues related to the company). You can also sell your stock for its current market price.
But what if you don’t want to buy whole shares? Or what if you think the price will go up in the future? In those cases, buying an option is a good idea! An option gives someone the right—but not the obligation—to buy or sell something at a specified price by a specific date.
There are many reasons that investors might choose to buy options:
- To protect their investment in a stock
- To speculate on the future performance of a stock
- To hedge their risk against another investment
- To generate income from premiums paid by other investors
What are Day Trading Options?
Day trading options are a form of trading that involves buying and selling financial instruments within the same trading day. The main difference between day trading options and other forms of trading is that day traders are not interested in holding on to their positions for longer periods.
Instead, they tend to take advantage of short-term price fluctuations by buying and selling financial assets within hours or even minutes.
Why is Daily Trade Alert important?
A daily trade alert is an email you receive with a list of stock recommendations in the morning.
The idea is that if you get this email every day, you’ll be able to make your own trading decisions by buying and selling stocks based on what’s on the list.
When you get this email, it should contain a lot of information about each stock: its current price, whether it’s going up or down in value at that moment, and what kind of movement (if any) it has had over the past week.
