Interested in Trading Options – Learn the Basics

The term of Options is one of the newly emerged financial vehicles on the market. Technically, an Option refers to a contract that allows you to purchase or sell an underlying financial instrument, such as an ETF, security or an index at a predetermined rate over a certain time period. Nature wise, they are very much similar to Futures and often have same underlying instruments and contract specifications.

Trading options is however different from trading Futures. They can be found on stock indexes, individual stocks and futures markets, and traded on their own by means of different strategies. The Options can also be combined with Futures contracts or other stocks to be used as a form of trade assurance.  Buying and selling Options is done on both on traditional options market as well as online trading platforms such as, GigaFX.

Options Contracts

An Options contract specifies the trading parameters of the market including the type of options, the tick size and value, the date of exercise or expiration, etc. When the contract specifications of an Option are indicated for one contract, it shows the tick value only for that contract. If you make a trade with more than one Option contracts, the tick value will be increased accordingly.

Types of Options Trade Entry

Options trade entry can be categorized into two major types i.e. “Call” or “Put”. Depending on the type of trade, they either give you the right to purchase or the right to sell. With the “Call” Options, you get the right to purchase the underlying commodity, such as shares or stocks whereas the “Put” Options allow you to sell the underlying commodity. This selling and purchasing can only be done when the Option contract is exercised, which either takes place at any time until the expiration, usually in US Options, or on the expiration date usually in European Options.

Options allow you to trade a contract in both up or down directions. For example, if you think that the Options market is likely to rise, a Call option will be your choice. Similarly, if you believe that the market will drop down, you will purchase a Put Option. In some Options strategies, you can also purchase a Put Option as well as a Call Option, showing that you do not care which direction the market will go.

Long and Short

Options trading does involve the term of long and short which is purchasing and selling of one or more contracts. This, however, does not refer to what direction of the trade you want to go with. For example, you can enter a trade by purchasing a Put Option contract which can still be a long trade even if you want the price to decline. GigaFX has some very good features that can be helpful for traders in options trading. Learn more through these GigaFX reviews.

How to Enter and Exist an Options trade?

You can enter a long Options trade by purchasing an Options contract and paying the seller the premium. If the market moves in your desired direction, you will get the profit. You have the opportunity to sell the contact and keep the difference amount between the time of purchasing and selling prices as your profit. Generally, the safe trade is when you sell an Options contract to exit a long trade since the sale belongs to an already owned contract.