Many people new to the Binary Options Trading Platforms arena believe that trading is all about stocks and bonds; however, the trading world has evolved so much that a typical trader has literally dozens of possible scenarios to choose from. One of them is options trading and no matter how difficult and complicated you have been led to believe this trading strategy is, it is quite simple to understand. Like all other Binary Options Strategies, options can be completely conservative and risk-free or some options might lead you to lose all your money. The main idea is to assess your expected gain and identify the worst possible case.
Basics of Option Trading for Dummies – Call Options
When traders say that they have opted for the call option, it means that they have the right but not necessarily the obligation to buy 100 shares of stock from the broker at a pre-determined price called the strike price. This strategy is dependent entirely on the time frame and the longer the period is, the higher will be the expected volatility of the stock. One thing crucial to understand for Option Trading for Dummies is that one contract is always based upon a hundred shares and therefore its amount will be reflected in the strike price and the premium. If you wish to remain conservative, you should be the buyer because your worst possible case would be to lose the premium alone. Your best case scenario is gaining money if the price of the stock goes as you had expected it to go.
The other side of the coin in Option Trading for Dummies is the role of the seller or the writer of the call option just mentioned. This approach has more risk because if you do not hedge your losses, you can lose an unlimited amount of money depending on the market.
Basics of Option Trading for Dummies- Put Options
Put Option Trading for Dummies is the opposite of call options. Buying a put option means that you have the right but not necessarily the obligation to sell 100 shares to the buyer at a pre-determined price and after a pre-determined time. Just like the call options, as a seller, you have to pay a premium depending on the period. However, unlike the call option trading for dummies, put option trading does not give you the opportunity for making unlimited gains. The maximum gains that you can get will be the price of the put option.
Keeping all of this in mind, the rules of Option Trading for Dummies signify that only if you expect the price of the stock to go down, you should buy the put. Selling a put option is the opposite of buying one; the limit of your losses will be equal to the difference of the strike price and zero and the premium that you will receive.