Options are unique in the world of financial trading. Buying and selling shares in a company is easy to understand, but trade is a little more complicated. It is a bit different to figure out how you can sell those shares before you buy them and even make a profit from the reduction of that price.
There are other things, rather than straightforward options. Derivatives are a good example. This means that you can buy things by ’’deriving’’ value for them from other things. If you take a future contract, as an example, you will see that the value of that contract changes as the price of its commodity underlies and varies. If that’s the case, you can work with its derivatives.
But when it comes to option trading, the definition is simple but complexity is multiplied. You can no longer look at the stock and see that shares are going up from 51 dollars to 57 dollars, for example. And that won’t necessarily mean that the six-dollar difference is your profit or your loss.
With options, you pick from the same stock, but you choose an option, which has a distinct price (50, 55, 60 dollars, and so forth), and you also choose a specific time frame for the price to change!
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