In the world of financial asset trading or securities, types of assets tradeable can be categorized into debt, equity or its derivatives. Debt such as bonds; equity includes stocks and the hybrid, such as options. How to invest in options would be a step by step learning because, like other securities, it is considered a high risk. But, it is a common thing that high risk would potentially earn a higher yield.
Options combined characteristic of debt as well as equity. To make it simply, we want to own an asset with limited money. So we make a deal with the owner to temporary own the asset for a certain price within a certain period of time. And we pay for it for some amount of money. But, the good thing is we can use, or in other word, trading the value of that underlying asset owned for some gain with no obligation to buy it in the end. And it is legal under the regulation of law over countries. Wow…! What in the world that can be?
So there is a company who called as the issuer, sell securities products such as stocks, futures, swap etc. An options forms in an equity warrant that the company issued to the holder to purchase at a specified number of shares and price within a specified time. There is an expired date of the ownership, yet it can give us profit or loss too. If you are a newbie in this world, there are several terminology you need to know before investing in options.
Trades, whatsoever include the activities of buy and sell, or calls ‘exercises’ in option. The word ‘strike price’ refers to the expected price underlying assets to be purchased or sold. This price can go up or down. When it’s up you can ‘call’ (or buy) and when it’s down you do ‘puts’ (or sell). Remember this is only can happen before the expiration date. It also has a break-even point where the strike price reaches the whole investment and the profit when it goes beyond the investment or you keep to await for the asset’s discounts before to buy and sell it in the market for a higher price.
The more information and exercise you will be needed to acknowledge how to invest in options. In the end it is about sharpening your intuition and broaden knowledge of the asset to either exercised it, trading out and worthless, since there lies of risks to gain high.
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