Options trading explained with examples - How to Trade Stock Options - Basics of Call & Put Options Explained
Trade money as you would any other investment. Johannesburg-based forex trader, Tshepo Brand, warns potential investors not to fall for brokers who guarantee returns.
A full-time forex trader himself, he tells HuffPost SA: It is trickier and more complicated than trwding think, but people underestimate its difficulty. You will lose money -- guaranteed Maria Bongwe lost R1,6 million.
The year-old from Polokwane, who had been trading for just a couple of weeks, made a R, initial investment that quickly grew to R1,6 million. She then lost it all.
Vanilla Options in South Africa - All you need to know | AvaTrade ZA
Bongwe recalls how shattered she was at the loss: Johannesburg-based forex trader, Siphiwe Magudulela, paid R35, to attend a trading seminar and has been trading full-time since.
He says he made his exxplained million in Septemberbut lost it options trading explained with examples in February of Percy Ngwenya, from the North West, blames losses he has made as 3 legged option trade forex trader on greed.
Ngwenya, who labels trading as a "very dangerous investment" tells HuffPost SA he miscalculated how the market would perform during Brexit. He has lost R25, in one day in one trade.
Why Forex Trading Is Becoming Such A Big Deal In SA
Trying another tradimg of trading, he lost R60, in one go. Another forex trader, Thanda Zulu, who is based in Durban, has also been doing it full-time for almost five years. She paid R10, to attend a seminar about trading and was immediately hooked.
Unemployed at options trading explained with examples time, she saw it as a great opportunity to earn some income.
A view she still strongly holds. She admits, however, it hasn't been an easy journey.
I had to teach myself and be hungry for it. Here is a text book definition: Here is how I define Option: It is basically an agreement between two parties to sell or purchase the right to an underlying stock.
The buyer of an Option pays a premium to the seller with a hope or speculation that the stock price may move up before the expiration of the agreement or vice versa. Traring are Options different from Stocks?
The Option contract has an expiration date unlike stocks. The expiration can vary from weeks, months ezamples years depending upon options trading explained with examples regulations and the type of Option that you are practicing. Stocks on the other hand do not have an expiration date. In this part I will take you through some of the most important aspects of Option trading.
Type of Options In true sense there are only two type of Options i. A Call Option is an option to buy an underlying Stock on or before its expiration date.
At the time of buying a Exampels Option you pay a certain amount of premium to the seller which grants you the right to but the underlying stock at a specified price strike price. Whereas, a Put Option is an option to sell an underlying Stock on or before its expiration date.
Purchasing a Put Option tfading that options futures strategies are bearish about the market and hoping that the price of the underlying stock may go down. In order for you to make profit the price of the options trading explained with examples should go xeamples from the strike price of the Put Option that you have purchased before or at the time of its expiration. What is Strike Price in Options Trading?
The Strike Price is the price at which the underlying stocks can be bought or sold as per the contract.
It is often referred as exercise. Underlying Asset Underlying asset can be stocks, futures, index, commodity or currency.
In the third case, he will sell a put option. Meaning he will act as the seller, and receive the premium directly to his account.
The risk he takes by selling an option is that he is wrong about qith market — and so he must be careful in choosing the strike price. In return for taking this risk, the option seller receives the upfront premium.
If spot finishes higher than the strike price, he keeps the premium and is free to sell another put, adding to his income earned from the first options trading explained with examples.
In both options trading examples, the premium is set by the market, as shown in the AvaOptions trading platform at the time of trade. The gains and losses, based on the strike price, will be determined by the rate of the underlying instrument at expiration.
At options trading explained with examples end of the day, it is considered a safe investment in fact, for an option buyer, they are far less risky than trading the underlying.
For a seller, explalned downside risks, too, are less than that of being wrong on a spot trade, as the option seller gets to set the strike price according to his risk appetite, and he earns a premium for having taken the risk.
Options do require an initial investment of time, to get to know the product. Perhaps the most unique advantage of options options trading explained with examples that one can express almost any market view, by combining long and short call and put options, and long or short spot positions.
He can buy a put option for his target expiration date, sit back and relax. If he turns to be right, spot is lower than the strike price by at least the premium value, he will earn profits.
Like any instrument, trading options has its risks and potential losses. However, there is a major difference between trading spot and trading options.
In spot trading the trader can only speculate on the market direction — will it go up or down. With options, on the other hand, he can execute a strategy based on many other factors — current price vs strike price, time, market options trading explained with examples, risk appetite, and more, i.
Options are a great tool for any trader who invests just a little time to understand how they work.
AvaTrade offers a full education section accessed directly from the trading platform. For an experienced and aggressive trader, options can be used in wiyh myriad of ways.
Description:Read this article to understand some basic options trading concepts and options which can be used to create a wide range of investment strategies. For example, a call option on a stock whose last price is 52 with a strike price of 45 has 7.