Options are one form of security instrument used by many business owners to save their money in the form of investment. Options are similar to mutual funds, security bonds and stocks but it has a versatile nature. It is a financial instrument used by investors for short term to get more profit with fewer risks. It involves a buyer and a seller. The buyer is the person who purchases the stock option from the seller by paying a premium or strike price within a fixed period of time (expiration date of option). There are two types of option available in option trading. They are call and put option. If the price of a particular stock rises in the stock market then you can buy the call option, which will yield you a greater profit. If the price of the same stock reduces in the market, you can earn profit by buying the put option of that stock which helps you to make profit.
If you want to do option trading, it is necessary for you to have a trading account, which may be a cash account or margin account. Cash account as the name implies involves hot cash to purchase any option from the seller while in margin account the buyer provides any stock, bonds or any collateral to the brokerage firm to start up the option trading. To open a cash account you are not required to deposit any money but if you are interested to open a margin account then you may need to pay $2000 of minimum deposit to the brokerage firm. If you want to perform options trading effectively then try to have an online brokerage account, which is better than the offline brokerage account. Online brokerage helps you to earn large profit than offline brokerage.
The main advantage of option trading is its leverage power. It is cost efficient compared to stocks. If you are investing $100 for 500 shares of a stock then the buyer has to deposit huge money, but if an investor intends to buy the call option of the stock or any commodity, they can save money as the option costs very less than the stock. If the share market of certain stocks or commodities falls then, you can get profit by means of put option, which can be used, in uncertain market conditions.
If you don’t know about option trading get proper training from financial executives as improper usage of option will lead to many problems.