Beginner Options Knowledge
Speed reading: 3 practical options functions
Options are a very practical trading and investment tool, especially when the market is volatile. It has the functions of leveraging small capital for large gains, hedging stock positions, and enhancing potential returns. However, options trading comes with its risks and may not be suitable for all investors.
In fact, options are a risk management tool, helping to hedge portfolio risks in response to market volatility. In addition to risk hedging, options are now widely used for high reward with low risk and enhancing potential returns.
If a trader is confident in their market judgment, they can buy or sell one or more options to seize this opportunity.
Options have a leveraging effect, which means buyers pay a small amount of option premium for the chance to profit from the difference between the rise in option premium driven by future stock price increase. This gives investors the opportunity to achieve a larger percentage return from relatively small percentage changes in the underlying assets.
However, if the price of the underlying assets does not rise or fall as expected, the leverage of options can magnify the percentage of investment losses.
These are some basic concepts of options. But for most traders, options are like other assets that can be bought and sold in the market.
The concept of buying low and selling high still applies to options trading. However, just like stock trading, the order can be reversed, and traders can also sell high and buy low.
It may sound a bit complicated at first, and that's why we bring you this course.
In the upcoming course, we will introduce you to the basic knowledge of options, important factors affecting options pricing, and delve into some common options trading strategies.
Let's get started.