Option

Options are often associated with stocks and stock indices. Options can be divided into two types: call options (Buy) and put options (sell).

An option is a contract between you and another party to buy or sell a specified number of securities (100 shares per option) at an agreed price (called the strike price) at some point in the future.

The option seller (or owner) is obliged to sell or buy the underlying at the strike price at the contract expiration. Securities. At this point, you, as an option holder, are required to pay an option fee to the holder to compensate for the risk you take.

For example, let's say you think Sigma's stock price (currently trading at $20 per share) will rise over the next month. You and the seller of the option you are calling agree to use $20 per share as the strike price and the seller will charge you an option fee of $1 per share, I .e. the total option fee is $100 for a total of 100 shares, $1 per share.

By the end of the month, Sigma's stock had risen to $25 per share. At this point, you can buy the company's stock from the seller at the previously agreed strike price of $20 per share under the option contract and immediately sell it on the open market at $25 per share. In this way, you will earn 500 US dollars, and of course you will have to deduct the option fee of 100 US dollars.

The reverse is also the same. If you think Sigma's stock price will fall, you can put the call option at a strike price of $20 per share, thus, 100 shares of the company's stock are sold to the right-seer at the expiration of the contract. If the stock price drops to $15 per share, you can buy 100 shares from the market and sell them to the right-sever at $20 per share.

Who is the winner?

Again, the biggest danger is that you end up finding yourself making the wrong bet. If you fail to gain a price advantage, you must buy or sell the underlying stock at a loss as required by the contract.