Basics of Options -1

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What are Options?

Options are bets placed on movement of stock/index prices, which are valid for a specified period of time.  

Types of Options.

Luckily we have only two types.

Calls & Puts.

Buyer of Calls: Has right to buy the stock at strike price but not obligation to buy the shares.

Buyers of Puts: Has right to Sell the stock at strike price but not obligation to Sell the shares.

How Options are different to stocks?

Investors/Traders dealing with Stocks have only one way of making money. i.e, if long in stocks, price needs to go up. If short in stocks, price needs to go down. Otherwise Investors/Traders loose money. Even if the stock does't move, then also they will lose money if we consider the amount on interest they would get, if money kept in bank deposits. So, theoretically making money in stocks is less than 50%. 

Where as in Options, if deployed (Calls &/or Puts) defensively, the probability of winning the bet is more than 50%.


This is my first blog on Options.😊

In next post I will explain more about Calls & Puts.

 



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