Now that you know that options are contracts that give you the right to buy or sell a stock at a specific price before a certain date, the next thing is to learn how they work.
Options work by allowing you to control 100 shares of stock for just a fraction of what it would cost to buy those shares – if you’re deciding to buy options.
In parallel to that, if you’re deciding to sell options – they work by turning sitting capital into a revenue machine.
You can use options to protect your current stock holdings from big losses, make money when stock prices go up or down, or control more shares than you could afford to buy directly.
The key is understanding that you’re buying or selling the right to do something, not the actual stock itself.
Options trading might seem complicated at first, but the basic idea is simple.
1) You’re making a bet on where you think a stock price will go and when it will get there.
2) There are strategies where you can flip this script too and earn for counting on the opposite – where the stock price won’t go and until when.
There’s literally no restriction and the possibilities to earn money are many. I’ve mentioned them in the article before here.
The key parts of an option trade:
To understand how options work, you have to understand the key parts of an option trade:
1) the call and put side
2) selling and buying an option
3) strike price, expiration date and premium
To explain how these work as simply as possible, you can’t learn each part separately, so we are going to explain the first two together and leave out the last part for now.
Remember this differentiation because it will be helpful later on.
The first order of business is to get familiar with this, then I’ll explain more simply so please stick around, I’m sure something will click with you.
(insert a picture of a table with above 3 bulletpoints with QW logo – I’ll design this.)
Buying Vs Selling Options: Understanding Both Sides Of The Trade
When you trade options, you can be either a buyer or a seller. Each side has different advantages and disadvantages.
In short:
Buying = more directional oriented trades
Selling = more conservative oriented trades
