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How to earn money from call option and put option

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The article holds a description about various options like put and call options found in the stock markets. It also contains information about how to earn from these options and things to remember to attain profits.

What are options?
Stock Options present the individual investors a lot of scope to invest in the stock market trades when compared to any other choice. Options are often explained as the contracts made between buyers and sellers of an asset in the stock market. Unlike the future trade, option trade offering a chance to make money during ups and downs in the stock market by providing the right to either buy or sell an asset or a stock but the individual is not obliged to exercise it. General assets included in the option trade are the stocks, indices, commodity future, currencies and interest rate shares and bonds.

Options are of two types and they include the put options and call options. There can be variations or the combination of both these options in the stock market strategies. Put options are those which provide the investor with a right to put, i.e., sell their stocks. On the other hand call options provide the right to buy the stock. Selling a call option and buying a put option will lead the trader into obligations.

How to make money through stock options?
A stock option gives the investors an option to buy or sell their stocks and thus make money in future. An option can be explained as either out of the money or in the money or even at the money depending on the strike as well as the current market prices. Both the options call and put help in making the money to the option holders and option writers. It is known fact that there is a great deal of fluctuations seen in the stock market. Option investors should understand this and must anticipate on buying or selling their stocks.

Puts and calls function opposite to each other, i.e., Call options provide an increase in value of the stock when the security asset is found increasing and decreases when its price in the stock market declines. On the other hand put options find an increase in the asset value when the underlying security asset is found decreasing in its value and the decreases in value when it is going up.

Some quick Facts for money making through options…
Dealing with stock options can be explained in brief as dealing with Money. Therefore one should have a proper understanding of the concept of option trade and must remember the following few quick facts before making the option deals. They include:

  • Appropriate time of option usage: one should know when to use the puts and when to use the calls. It is imperative to know that one should invest on put options when the underlying stock goes down and call option when the stock goes up.

  • Advisable trading: it is often advised to simply buy and sell the options rather than exercising on them.

  •  Stock market fluctuations: It becomes pretty imperative to understand and analyze the constant stock market fluctuations as they hold a huge impact on the price of the options, which in turn holds an influence on the money investments of the investor.

  • Quick trade: depending on the fluctuations in the market, the price of the option varies. They may face quick and sharp increase as well as decrease in the option price. Therefore the individual is advised to trade their options depending on these quick price increases for better profits.

What should be remembered when dealing with options?
When dealing with the stock options one should always remember the following in order to gain profits. They include:

    • Thorough understanding of the stock options is very much to prevent loses. Therefore one should keep in mind the basics involved in stock option trading before making deals in order to gain profits.

    • It is very important to remember the validity of the option. Majority of the stock option contracts are valid only for a period of time. Later on they cease to exist and will lead the investor into losses.

    • Options have an expiration date. Therefore one should keep in mind the fact that they trade their options in the stock market before the expiry date in order to prevent the loss of investment and make them worthless.


     

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