What Is An Option
Many times in our life time
We have used an option many times in our life time. When you buy an insurance policy, you buy an option. When you place a deposit for a house you want to buy, you have bought an option. When you buy a movie ticket, you have bought an option. These are all instruments of options. The key feature here is your right to keep or kill that option without any legal recourse or obligation to you. Only the sellers have that obligation to deliver the products and/or services.
For this unique characteristic, an option is actually the right to buy (or sell) an asset at a specified price on or before a pre-determined date. In the case of buying a house, you will sign a letter of intent to buy the house with the seller and place an earnest deposit. The house price will be specified and a date by which a new sale-and-purchase agreement must be signed to facilitate and complete the transaction. That letter of intent is an option. Note that you as a buyer may decide
to abort the purchase without any legal bondage. For that, you will lose the earnest deposit – in our case, the option price – for aborting the transaction. The seller, however, is legally bound to deliver the house, should you decide to proceed to make the purchase.
Companies issue stock options. This type of options is peculiar to only the stocks of the company. Ordinary investors may only buy the options for specific reason for the company. Employee stock option, for instance, is this form of options.
The options that we talk about here is the Exchange-Traded Options. Chicago Board Option Exchange (CBOE), based in the US, is the main exchange that
allows individual and institutional investors to buy AND sell options freely among
the investors. The companies of the options being traded have no role to play
in the markets.
In the financial markets, there are options for many types of financial assets. You have stocks, indexes, futures, exchange-traded funds, gold, crude oil, currencies, and many others. Options are used for many purposes and are often used to hedge the risk of the assets owned by investors. For example, fund managers may buy options to protect the stocks from losing value due to a financial melt-down. Therefore, this type of options performs as an insurance for the stocks.
We have used an option many times in our life time. When you buy an insurance policy, you buy an option. When you place a deposit for a house you want to buy, you have bought an option. When you buy a movie ticket, you have bought an option…
Most people love the thrill of directional trading. The prospects of huge gain within a few days or even a few minutes are exciting and mentally satisfying for hitting the jackpot. But this speculative punting comes with a price.
Iron Condor Academy merely wants to help you set up the trade correctly. Any experienced traders will tell you that the nuances of a successful trade from beginning to the end are what you should be learning, NOT FOCUSING on finding the right trade entries/signals – which is the mainstay of other directional trading systems.