There are different types of trading techniques in the financial market. One of them is options trading. In simpler words, options trading is where two parties make a specific agreement, where the buyer agrees to buy the stocks or shares at a predetermined price within a specified period. Options trading is very different from regular stock trading. In stock trading, an individual can trade the stocks and shares at any point without having any obligations, whereas, in options trading, there is a certain period within which a person has to buy the stocks at the decided price. The period can be days, weeks, months, or even years, depending on the agreement and offer proposed between the two parties. Options trading can be done directly or through a broker as well. Another significant difference between the two is the value. Stocks value is determined upon the activity that takes place in the market and other factors similar to it. The factors that change the value of a stock are visible. For options trading, the factors that decide the price of buying are very different and are calculated through various elements. Also, if you are into options trading and purchase stock from the company, you will not have any rights in the organizations like the normal Stock owners, who have the right to vote or dividend.
There are two types of options trading that you will come across very often. It is called Call and Put. The call is an option to buy the stock before a limited time frame that has been provided to the buyer. At the time of Call, the buyer will have to pay a certain amount to the seller or broker, to reserve the right for buying the stock at a particular price in the limited time frame. For example, if you are willing to buy a share of $100, your broker might give you an offer to pay $5 right now, and get the right to purchase the stocks within a month at the same price it is today. It can be very profitable in case the cost of the shares go higher in the future. The second option is to Put where the individual gets an opportunity to sell the stock before the time limit. Put options, an individual expects the price of the shares to go down to make a profit. The price should go down from the strike price and premium amount before the expiration time.
In both the options, the chances of loss for a buyer are least while the probability of making huge profits in this is much more than that. Options trading is not meant for a novice, and one should only invest through this strategy after they have some experience in the stock market. Options trading is less risky than other types of financial securities and can be done by a trader who is looking for profits with the least risk.