Principles of Stock Option Trading – How Do Puts and Calls Work?

The principles of stock options trading can be quite intimidating if you’re a beginner to options trading. Once you get familiar with things you’ll be able to trade stock options like it’s second-hand nature.

Being a share market expert sharing what I know reinforces my own knowledge, and also allows you to learn some basic principles of stock options trading. Maybe this would help you to achieve 100% returns on your money.

I do feel that learning the principles of stock options trading is essential for any investor. Their versatility and profit potential are nearly unmatched in the stock market arena.

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Before we jump further into this article I would prefer to describe some of the principles of stock option trading options.

What are Stock Options?

If you buy or own a stock option contract it gives you the “right”, but not the obligation, to buy or sell shares of a stock at a set price on or before a given date.

So essentially it’s a contract that grants you certain rights. In this case, you have the right to buy or sell a stock. You’re not obligated to buy or sell the stock; you just have the right to do so.

In case you find it difficult to learn some technical terms you can also explore the web for more information on options trading courses.

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Stock options are also called derivatives. That’s actually their proper name.

Children are derived from their parents. Cheese is derived from milk. Stock options are derived from stocks. You can’t have the latter without the former.

In simple words, the term derivative refers to how the price of these contracts is derived from the price of the stock. Their value is dependent on the price of the stock it was created for. Goldman Sachs (GS) stock options are created for Goldman Sachs the stock. Generally, the option’s value will rise and fall in sync with the stock price.

Mastering the principles of stock options trading is the foundation of gaining more & more profit for your investment. You can also see this post to learn more about option trading courses.