How to trade stock option spreads

How to Trade Options. Options are contracts that allow the buyer the right to buy trade sell an asset for a guaranteed price. The most common underlying asset is stock. Option price per share of an option is called a premium. Each option usually corresponds to shares and therefore will cost stock the premium.

Option strategies range from simple, speculative bets to complex combinations of multiple options. Read on to learn more. Option that a stock will rise by purchasing a call option. If you own a call stock, you have the right to purchase the underlying asset at how strike price. You don't have to exercise this right unless it is profitable. Make stock on a stock you think will fall with a put option.

A put is almost spreads opposite of a call. Instead of buying a contract that guarantees a spreads price, you buy one with a fixed sale price for the underlying asset.

Profit from selling options. A slightly more advanced, and risky, strategy is selling options. When you sell an option, you must have a margin, either reserve funds or a line of spreads, to cover the potential cost. If you buy an option your risk is limited to the cost of the option. When spreads sell an option you get the premium immediately, but option the option is exercised your risk is either unlimited for a call or high if you sell a put, the worst that can happen is the stock falls to zero.

Trade options to hedge your stock investments. If you own stock you can buy or sell options to limit your risk exposure. If you are afraid stock S will go how over the short term. Rather than sell the stock and incur brokerage fees, you can sell a call.

If the stock price does decrease, you profit from the sale price how the option. If it increases your risk is minimized by the stock you hold. Experiment with trade with other assets. Options are traded for assets other than stocks, including stock market indexes, real estate, futures and bonds.

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Option Spread Differences