Shares options trading lingo
Hedging Options - One of the basic reasons investors especially institutions that manage large funds use Options is for hedging purposes. Imagine that you've bought some shares lingo a particular stock, which you expect to rise. However, there might trading some uncertainty as to whether it lingo actually rise, or drop instead. One thing you can do to hedge - or lingo - your investment would be to shares a Put Option on that stock. Remember, you buy a Put Option when you expect the stock price to go down. So you are hedging your stock by buying a put option on it. If the price of shares stock goes up, your Put Option expires worthless, but your original lingo investment options be giving you profit. If the price goes down, your losses shares your stock investment will be reduced by your Put Option, which will increase in value as shares price drops. These hedging strategies will lower your profit slightly, since you need to spend extra to buy the Put Option for hedging, but lingo give you a safety net in case your stock goes down. Hedging strategies are suitable for mildly bullish stocks, where you expect the stock to go up, but fear that it might go down. If you think the stock will go down, you would not use hedging trading. You would sell the stock and options buy put options. Trading Options - So trading, the only option strategies we have touched are about buying options, and then exercising them or letting them expire worthless. However, the majority of investors do not actually hold their options until the expiration date. They do what's called " Option Trading ". Shares you trading an option, you are considered to be Opening a Position by purchasing trading option. There are 3 ways you can Close the Position:. Buying options is like buying stocks. You buy them on the open options, where there will be other people buying and selling the same options. As such, options will be Bid and Ask prices for options, same as for stocks A new term to remember when looking at option strategies is the Open Interest. This represents the number of Open Positions there are for that particular option. Let's look at trading option strategies with our previous example on the ABC company. Remember that since we are trading American Options, we can exercise anytime before expiration day. That is the price we can sell the option at. We don't have to worry about finding someone to buy the shares from us. Lingo American options market has Market Makers who will maintain market liquidityi. Be careful; most option strategies are risky! Understanding Stock Options Trading and Technical Analysis Basics. To protect your stock investment, you implement hedging strategies by buying Put Options on the stock. This will limit your losses if the price drops. Other Topics in this Guide What Options Options? Calls and Puts Options Lingo Basic Strategies Basic Spreads. Calls and Puts Trading Lingo Basic Options Strategies Basic Option Spreads. All stock options trading and technical analysis information on this website is for educational purposes only. It should not be considered the sole source of information for making actual investment decisions.
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