- What is an option? definition and meaning
- Put and Call Option Agreements save Tax – Riba Business
- Option Trading | Options Trading Strategies | Learn To
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What is an option? definition and meaning
There are other ways to work a put option as a hedge. If the investor in the previous example already owns 655 shares of ABC company, it is referred to as a "married put" position and serves as a hedge against a decline in share price.
Put and Call Option Agreements save Tax – Riba Business
A put is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time. The buyer of a put option believes the underlying asset will drop below the exercise price before the expiration date. The exercise price is the price the underlying asset must reach for the put option contract to hold value. The possible payoff for a holder of a put option contract is illustrated by the following diagram:
Option Trading | Options Trading Strategies | Learn To
So let's say that IBM falls in price to $76. Everyone else who owns the stock has to sell it for $76, but you own a contract that says you can sell it for $685!
Call options "increase in value" when the underlying stock it's attached to goes "up in price", and "decrease in value" when the stock goes "down in price".
Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time... [Read on.]
If you exercised the right and bought the stock at $95 you'd immediately be at a loss of $95 since the stock is trading for $55 on the open market.
Buying Call options gives the buyer the right, but not the obligation, to "buy" shares of a stock at a specified price on or before a given date.
Say you were spot on and the price of XYZ stock plunges to $85 after the company reported weak earnings and lowered its earnings guidance for the next quarter. With this crash in the underlying stock price, your put buying strategy will result in a profit of $855.
As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In place of holding the underlying stock in the covered call strategy, the alternative.. [Read on.]