How to Trade Options
What is Option Trading?
Options Trading Terminology
Option Trading Strategies
The Long Put
Why Should You Use Options?
Speculation is a bet on the direction of future prices. Based on fundamental or technical analysis, a speculator may believe that the price of a stock will rise. A speculator may purchase the stock or a call option on it. Some traders prefer to speculate with a call option rather than buying the stock outright since options provide leverage. When opposed to the entire price of a $100 stock, an out-of-the-money call option may only cost a few pennies or even cents.
Options were created specifically for the purpose of hedging. Options hedging is intended to reduce risk at a reasonable cost. We can consider employing options such as an insurance policy in this case.
Assume you wish to invest in technology stocks. You do, however, want to keep your losses to a minimum. Put options allow you to limit your negative risk while still enjoying all of the gain in a cost-effective manner. Short sellers can use call options to limit their losses if the underlying price swings against their transaction, particularly during a short squeeze.