Part 9 Trading master Class

Options trading involves the buying and selling of financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price (the strike price) before a set expiration date. There are two main types: call options, which grant the right to buy, and put options, which grant the right to sell. Traders pay a premium to the seller for this right. Options can be used to speculate on an asset's price movements or to manage risk by hedging existing positions.

How it Works
The Contract: An options contract specifies the underlying asset (like a stock), the strike price (the agreed-upon price for the transaction), and the expiration date (the deadline for the contract to be valid).

The Buyer: The buyer pays a premium to the seller for the option. They gain the right to exercise the contract if it becomes profitable but is not obligated to do so

The Seller: The seller receives the premium and is obligated to fulfill the contract if the buyer chooses to exercise it.

Exercise: If the price of the underlying asset moves favorably, the buyer can exercise the option. For example, with a call option, if the stock price is above the strike price, the buyer can purchase the stock at the lower strike price.

Expiration: If the market price doesn't reach a profitable level by the expiration date, the option can expire worthless, and the buyer loses the premium paid.

Why Trade Options?
Leverage: Options require less upfront capital than buying the underlying asset directly, allowing traders to potentially profit more from smaller price movements

Risk Management (Hedging): Options can be used to protect existing investments from potential losses.

Flexibility: Options offer greater flexibility than traditional stocks, allowing traders to profit from both rising and falling markets without needing to own the asset.