How do put options work. Who is buying the stocks from you?

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What if you had had a hunch that Microsoft stock would skyrocket when it introduced Windows 8? Would you have risked purchasing Microsoft stock on just a hunch? Well you can do both through options. An option is a standardized contract to either buy or sell a stock at a pre-determined price within a specific date. The key word is option; if you buy an option contract, you have the option, not the obligation, to exercise your contract if it makes financial sense for you at that future date.

Option trading has been around for thousands of years and is widely used by many people to either protect the value of an existing investment or speculate on the future movement of an asset. There are two types of option contracts: A call option gives the owner the option to buy a stock at a set price in the future, whereas a put option gives the owner the option to sell a stock at a set price in the future. A put option grants you the right to sell a stock at a set price. An investor buys a put option if she feels the price of a stock is going to decline and wants to lock-in a particular price.

It is March, and you own shares of Apple stock symbol: Each option controls shares of the underlying stock, so 1 put option would give you the protection you seek. A call option grants you the right to buy a stock at a specific price. You would buy a call option if you think the price of a stock will rise within a given time and you wanted to benefit from the expected rise. Again, if the price of Apple does not rise by the May expiration date, you simply let your option expire.

As you can imagine, options can be useful for certain investors who are interested in: While there are only two types of options calls and putsthere are a multitude of strategies an investor can employ by combining calls and puts. Though it may seem that options as part of your portfolio is a no-brainer, this article is simply an introduction to options.

It is important to understand that options are quite complicated and can be rather risky. Options should only be used by experienced investors who really understand the mechanics of options — note, there is no easy money in trading options. Some people brag about making a lot of money in options, but be careful because option prices move very quickly, and while you can quickly make a lot of money, you can also easily lose a lot of money in just a single day.

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With gold prices hovering Content on this site is for general information purposes only. Please note that a financial planning engagement has not been established and therefore compete data has not been gathered and all alternatives have not been considered. How Do Options Work? Money Resolutions We are getting toward that time of the year again where we start to reflect on the events of the past year and look forward to the Forward Thinking A few years ago I helped conduct a focus group.

A Diversified Approach to Investing in Commodities If you watch TV, read the newspaper, or listen to the radio, you have probably heard something about buying gold. View List of Financial Planners.

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Trading put and call options. People trade stock options for myriad reasons. Often times, it is purely for speculative reasons. For example, if you believe that the Swine Flu pandemic is going to become particularly troublesome and a stock with a vested interest in supplying vaccines in large quantities would stand to benefit from such a scenario, then perhaps you purchase an out of the money call option on Novavax.

The cost premium is. As you can see, utilizing these leveraged instruments can lead to big gains quickly. Note that at the other end is a Call Seller which is often someone engaging in covered call option writing strategies — this can be a lucrative option strategy worth checking out as well.

When wondering if anyone actually made money during the economic collapse, the answer is a resounding YES! People who were holding puts on Financial and Real Estate stocks especially, made large returns on investment given the precipitous declines in shares of those companies. The premium or your cash outlay for such a play is. That represents a 16x return on investment. Imagine the players that had the foresight to buy out of the money puts in and ?

There are various online brokerage outfits that allow you to trade stock options. For most outfits, you can buy options without any special requirements. Here are the top online options trading brokerages based on reviews and costing: Zecco — Another incredible pricing scenario —. Tradeking is widely knows as best in class for service and cost. I endorse TradeKing and I have an account myself.

How do options work , Trade Stock Options. I thought that I would never leave Etrade, but I was wrong. There is so much you can do and make with stock options.

October 5th, at 2: Earn Cash Now , I am interested in learning about options and would be grateful for your teaching me..

Can you provide any suggestions? Thanks — Phil Cantor. I think that options trading has great potential for the non-professional investor as well as the professionals.

I think it is necessary to learn about some of the strategies beyond straight forward buying calls and puts. Is it realistic for the home trader to engage in selling options, or should he stick to buying only?

Than you so much for all of this great information. Another site that I have found to be very helpful for beginners is www. Where can I find out the prices for put options? I would like to find out how much a put option cost if I had a strike price of the same amount that I bought a stock for and only need it for a short time say 5 days.

Binary Options are a Scam to take your money. They are offshore and unregulated by the US. Also if you give them your personal info. Trading is now Ally. Following your Tradeking link you will be redirected to https: Now sign in to complete your move. You can use these HTML tags and attributes: Notify me of followup comments via e-mail. Notify me of follow-up comments via e-mail.

How do Stock Options Work? Stock Option Trading Basics: A Stock Options Contract is a contract between a buyer and a seller whereby a CALL buyer can buy a stock at a given price called the strike price and a PUT buyer can sell a stock at the strike price. This is the key price that drives the transaction. This is the last date the option can be traded or exercised, after which it expires. Generally, there are options traded for each month and if they go out years, they are referred to as LEAPS.

This is just another word for the price of the option contract. For our purposes, we will be discussing stock options. Buyer or Seller Status: If you are the buyer, you have control of the transaction. You purchased the option contract and can execute the transaction or close it out or you can choose to allow the options contract to expire usually only in the case where it is worthless.

If you are a seller of an options contract, you are at the mercy of the buyer and must rely on the holder at the other end of the contract. Thanks — Phil Cantor [ Reply ].

I always find options to be more complex than stocks but this is a good start [ Reply ]. Hey, thanks for great explanation! It makes more sense now [ Reply ]. Click to cancel reply. The opinions are those of the author only. It is recommended that you conduct independent research and consult a certified financial adviser before making any investment or financial decisions based on content from this blog. No responsibility will be accepted for adverse events that may result as a consequence of acting on the information presented herein.