Lesson 2: Basics of Options trading
Options vs. Stock trading
Advantage of Options:
- You can protect stock holdings from a decline in market price.
- You can increase income against current stock holdings.
- You can prepare to buy stock at a lower price.
- You can position yourself for a big market move, even when you don’t know direction.
Types of Options
There are only two types of Options i.e Call & Put Options. We will understand them in more detail.
let’s summarize what the four terms mean:
- Short call – Here we are betting that the prices will fall and hence, a short call means you are selling calls.
- Short put – Here the short put means we are selling a put option
- Long call – It means that we are buying a call option since we are optimistic about the asset’s price
- Long put – Here we are buying a put option.
Options Payoff diagram
Payoff diagrams are a way of depicting what an option or set of options or options combined with other securities are worth at option expiration.
Options Pricing
An option’s premium is comprised of intrinsic value and extrinsic value.
Intrinsic value is reflective of the actual value of the strike price versus the current market price. Extrinsic value is made up of time until expiration, implied volatility, dividends and interest rate risks.
Tools & Technology for Option Traders
#1: Strategy Builder with Payoff Graph
Create, analyze, and execute strategies seamlessly with strategy builder’s complete toolkit.
#2: Multi-Time Frame Charts!
Spot trends across 1-minute, 5-minute, and hourly charts
#3: Option Chain Dashboard
See where big players are betting with Open Interest
Thank you
Please click on next lesson to learn more!