Options are perhaps the most versatile of all the trading instruments in the market today. They cost a lot less to transact than stocks. And because of this, traders are able to considerably limit the risks linked with a certain transaction. There are basically two kinds of options: call options and put options. Call options give the trader the right to purchase assets, while the put options give you to the right to sell.
The good thing about options is that because they are exercised at a specific time frame and its rates are based on a set price, the risks that you stand to face are controlled and limited. If you are buying call options, you are likely to benefit from this condition. On the contrary, if you are selling put options, you may keep the value of the options you laid out on the table if these are not picked up and bought within the time frame specified.
The expiration date is the deadline set by both parties on when the stock option should have been traded or sold. The option should not stay for too long on an investor’s hand because doing do would make it void, especially after the expiration date. Best put, holders of put options have the obligation to sell, while holders of call options have the obligation to buy.
How are options traded?
It is definitely as easy as trading regular stocks and equities in the stock market. There are buyers and sellers of stock options that abound and roam around the market. Be reminded that stock options are named such because these are actually options. These shares are special and unique in the sense that the are different and are treated differently compared to the regular and normal stocks and shares traded in the market.
The price tags are also somehow different most of the time to the current and prevailing stock prices of a particular stock. Usually, stock options are traded at premium prices, or in other words somehow higher than the usual trading price of the stock in the market. But this is a very small price compared to the amount of protection options give you against risks, compared to common stocks.
There are issues that are thrown at stock option trading. One of these issues is the question on the timing of the granting of such stock options. Because stock options are usually given to top executives, some people and analysts are suspicious that those executives determine the proper timing for the issuance of the stock options.
They would, according to allegations, intentionally make the timing coincide with the low pricing of stocks. Because when the stock prices are low, more options could be given to the recipients. These executives can then choose to hold on to their stock options until the time when share prices are rising. Thus, they generate more money from the stock options trading transactions. That issue and problem regarding stock options is now being reviewed and looked at by different regulating agencies around the world.