What is Option Trading
An option is a sort of agreement between a seller and a buyer to sell stock at a fixed price and on or before and specific date. Option trading gives the right to the buyer to buy or not to buy that means he has got the choice to make the decision. On the other hand the seller has got no choice because when the buyer opts for buying the stocks the seller has to sell the stocks to the buyer.
The whole concept of option trading is quite simple and easy to understand. For example, a buyer is willing to buy stocks of a certain company but hasn’t got the required amount of cash so he can deal with the seller that he will buy the stocks before suppose a 6 months period at a certain decided amount of price. And after 3 months the price of the stock goes up and the buyer decides to buy then the seller will have to sell at the same price decided before even if the prices are high at the moment.
Option trading is of two types namely;
Call option gives the buyer the right to buy the stocks at a previously agreed price with the seller before a specific date. Where as a put option gives the rights to the buyer to buy the stocks and then instantly sell it to the third party.
Option trading has various advantages but at the same time it has also got some disadvantages. The disadvantages include that the buyer might have to pay a specific amount of fees in order to secure the option trade but that fees is not included in the total amount when the buyer purchases the stocks. And the advantages include that this type of trade is flexible and the buyer can withdraw at anytime he wants to.
Lastly, option trading is an easy form of trading that is flexible in nature and allows the buyer to trade as well as earn profits to a certain extent. If you want to make an investment in certain financial assets but do not have the required amount of money you can opt for option trading which does not require any sort of initial investment from your side.
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