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With stock trading there needs to be a buyer and a seller that agree on a price for a trade to occur. Similarly, in the world of options there is an option buyer and an option seller. The option buyer agrees to pay a fee, called a premium, to the option seller.
The price of the premium is a relatively small amount of money that allows you the choice to buy or sell a certain number of shares at a fixed price . Then, you buy or sell your options to increase your profits or lower your risk of loss. For instance, you could have ten options in place if you’re looking to buy or sell 1,000 shares.
For now, rookies should aim for a...
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