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Options trade


Steveblaze

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Please forgive me for this very silly question but I’m new to options trades and just can’t get my head around one bit.

I understand the Call and Put part of the contracts but what I can’t get a grip of is why is get a buy or sell option for each as well.

for example. Say I think the SP will hit 3300 in 2 weeks time then I’d want to Buy and Put option at that price. Why do I also get the option to Sell a put at that level too?

If I’ve understood it right if I sell a put at that level am in assuming all of the risk on that trade if the market goes up? I’m the insurer rather than the insured? Is that right?

thanks for any help 

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On 01/10/2022 at 11:09, Steveblaze said:

Please forgive me for this very silly question but I’m new to options trades and just can’t get my head around one bit.

I understand the Call and Put part of the contracts but what I can’t get a grip of is why is get a buy or sell option for each as well.

for example. Say I think the SP will hit 3300 in 2 weeks time then I’d want to Buy and Put option at that price. Why do I also get the option to Sell a put at that level too?

If I’ve understood it right if I sell a put at that level am in assuming all of the risk on that trade if the market goes up? I’m the insurer rather than the insured? Is that right?

thanks for any help 

Hi @Steveblaze

Thank you for reaching out.

Simply put, buying a Put option is a bearish strategy. This is a strategy that you would employ if you were bearish about the prospects of the underlying markets, or if you thought the price is likely to remain the same. You are buying the right, but not the obligation to sell a certain product at a certain price at a set date. Therefore, if the price goes down you, the option holder, would execute the right to sell at a higher price but if the price goes up you will not execute the right to sell at a lower price, therefore you lose the premium.

Whereas when selling a Put option, you would employ this strategy if you thought the market price is likely to remain the same or to rise. You are selling the right, but not the obligation for the option holder to sell you a certain product at a certain price at a set date. Therefore, if the price goes up the option holder will not
execute the right to sell you a product at a lower price, consequently you keep the premium, but if the
price goes down the option holder will execute the right to sell you a product at a higher price thus
causing you a loss.

Have a look at How you can trade options

All the best, OfentseIG

 

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On 01/10/2022 at 11:09, Steveblaze said:

Please forgive me for this very silly question but I’m new to options trades and just can’t get my head around one bit.

Hi @Steveblaze

Call Options Explained in 7 Minutes | Options For Beginners 2022

A call option gives the owner the right to buy 100 shares of stock at the strike price at expiration if it is ITM, or below the stock price. Mike explains the basics of call options from the long (bought) and short (sold) side, how to calculate profit or loss from the option in real-time, and why it's so important to master the fundamentals before diving into other complex options strategies.

0:00 tastytrade Learn Center Intro

0:29 Call Options Intro

1:58 Call Options vs. Long Stock

3:42 Long Call Options

4:22 Short Call Options

5:58 tastytrade Approach

6:37 Call Options Review

 

I hope this helps for your understanding.

 

All the best - MongiIG

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