Options Basics To Understand The Strategies
Options contracts enable traders to either buy or sell an underlying asset at a specified price on a predetermined date. While spot trading enables a trader to bet on an asset increasing or decreasing in value and share linearly in their returns, options allow for more complex, non-linear returns when expressing a market view.
There are two types of options:
- 1.Calls - Contracts that allow you to buy an asset at a set price on a specified date.
- 2.Puts - Options contracts that allow you to sell an asset at a set price on a specified date.
All options have the following properties:
- Strike price - The price at which the underlying asset can either be bought or sold.
- Expiry - The date at which the option expires.
- Premium - The price of the options contract
Options are a type of derivative, meaning their value relies on an underlying asset, enabling investors to express more complex market views and achieve unique risk/return profiles.
Options have the following key advantages:
- 3.Non-Linear Returns