![]() How do options work?Ī trader will buy a call and sell a put depending on their outlook for the underlying asset. Trading in OTC markets is usually facilitated by a network of brokers. In OTC markets, assets change hands directly between counter parties without the need for a centralised exchange. However, their use is limited and trading only takes place over-the-counter ( OTC). There are special option contracts called perpetual options that come without an expiration date. European options can only be exercised on the expiration date. For example, American options can be exercised at any given time before they are due. Option contracts can differ with respect to their expiration dates. A put option gives the contract holder the right to sell the underlying asset at a stated price within the predefined time period. A call option allows the contract holder to buy the underlying asset at a stated price within the predefined time frame. The two most basic types of option contracts are call and put options. Margins can be used to trade option contracts. An option contract usually represents the right to buy or sell 100 units of an underlying asset. Option contracts differ from futures contracts because the holder is not obligated to buy or sell the asset. The underlying asset can be stocks, indices, fixed-income assets, foreign exchange, commodities and exchange-traded funds (ETFs). Options are derivative contracts that give the holder the right to buy or sell an underlying asset at a predefined price on or before a specific date. Option trading is the buying and selling of financial instruments called options. We have put together some of the most commonly used option trading strategies and important trading metrics that option traders use. It is imperative for traders to learn useful option trading strategies to reduce risk and optimise their trades. ![]() Option trading can be complex for new market participants, and can expose traders to big losses. Options are popular financial instruments that offer investors and traders flexibility through the use of leverage and the ability to hedge against unfavourable market movements.
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