An exploration into the unknown takes some chutzpah mixed with a bit of masochistic carelessness. Investing in binary options trading is quite similar.
What is an Option?
An option is a financial security that derives its value from an underlying security, such as a stock or bond. It is a financial contract with stringent stipulations between a writer and a holder. The contract gives the holder either the right to buy (call) or sell (put) an option at a certain specified price (strike price) between the start of the contract and its expiration date. A holder is not required to act on the option; he or she only has the ability. The price paid for an option is called the premium price, and the value of an option is labeled the intrinsic value.
Types of Options Available
There are several different types of options besides call and put. American-style options allow the holder to exercise or trade an option at any point before the expiration date, while European-style options only allow the holder to act at the exact expiration date. Exchange-traded options are publicly bought and sold on a public exchange floor, such as the Chicago Board Options Exchange, while over-the-counter (OTC) options are versatile options set between two private parties. Options are often used by corporations as hedging techniques for high-risk investments.
So why opt for options?
Holders have limited risk. If a call option is not above the strike price, the holder has no duty to buy the options. The contract expires worthless and the holder loses only the premium price. Theoretically, however, profits are unlimited. But sky-high profits are not likely, as the call writer in this case is betting that the underlying security's price will not go up. Options give their holders a phenomenal amount of leverage. If one option controls 100 stocks, then a small amount of invested capital can control a huge quantity of equities.
This makes them cost efficient, much more than equities or bond investing. Options are extraordinarily versatile investments. Nearly any asset can be hedged or sold through options, and, depending on the type of option, money can made if the underlying asset's price goes up or down.
An option is a financial security that derives its value from an underlying security, such as a stock or bond. It is a financial contract with stringent stipulations between a writer and a holder. The contract gives the holder either the right to buy (call) or sell (put) an option at a certain specified price (strike price) between the start of the contract and its expiration date. A holder is not required to act on the option; he or she only has the ability. The price paid for an option is called the premium price, and the value of an option is labeled the intrinsic value.
Types of Options Available
There are several different types of options besides call and put. American-style options allow the holder to exercise or trade an option at any point before the expiration date, while European-style options only allow the holder to act at the exact expiration date. Exchange-traded options are publicly bought and sold on a public exchange floor, such as the Chicago Board Options Exchange, while over-the-counter (OTC) options are versatile options set between two private parties. Options are often used by corporations as hedging techniques for high-risk investments.
Holders have limited risk. If a call option is not above the strike price, the holder has no duty to buy the options. The contract expires worthless and the holder loses only the premium price. Theoretically, however, profits are unlimited. But sky-high profits are not likely, as the call writer in this case is betting that the underlying security's price will not go up. Options give their holders a phenomenal amount of leverage. If one option controls 100 stocks, then a small amount of invested capital can control a huge quantity of equities.
This makes them cost efficient, much more than equities or bond investing. Options are extraordinarily versatile investments. Nearly any asset can be hedged or sold through options, and, depending on the type of option, money can made if the underlying asset's price goes up or down.
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It's a classic case of "Tails, I win; heads, you lose."
Options trading can be a financial safari. It takes a cool hand and mind to succeed. But for versatility and leverage, options have few competitors. Foray away.
Options trading can be a financial safari. It takes a cool hand and mind to succeed. But for versatility and leverage, options have few competitors. Foray away.
Pro Robot is a binary options broker that offers dozens of underlying assets to trade with options in the market such as Forex, commodities, stocks and indices.
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