Part 11 Trading Master ClassWhat Is Option Trading?
Option trading is a form of derivatives trading, where investors buy or sell contracts that give them the right but not the obligation to buy or sell an underlying asset (such as stocks, indices, or commodities) at a predetermined price before or on a specific date.
Unlike stocks, which represent ownership in a company, options represent a financial contract derived from the price movement of another asset — hence, they are part of the derivatives market.
There are two main types of options:
Call Options: Give the holder the right to buy an asset at a set price.
Put Options: Give the holder the right to sell an asset at a set price.
Each option contract involves:
Strike Price: The agreed-upon price for buying/selling the asset.
Expiry Date: The last date the option can be exercised.
Premium: The price paid to buy the option.
