Stock Trading Options
stock trading options can be used as a protective and speculative technique
They can be used as a speculative medium with small, or relatively small risk and with unlimited possible profit.
There are different types and uses of these protective and speculative techniques in investments today. A football club can get an option on a player, a movie studio on an actor or actress, and you can even choose one as to how you wish to have your life insurance paid to your heirs
In the case of stock trading options, an option which gives the right to buy a certain number of stocks at a predetermined price is called a call while an option which gives the right to sell a certain number of stocks at a predetermined price is called put.
The holder of a Call option exercises his option contract only if it is to his advantage to do so, when the call reaches the strike price.
They, options can also be used as protective contracts, they can protect either before or after a stock commitment. You can buy an option to protect a stock purchase or a sale already made or about to be made. You can acquire a Put contract to protect stock which you hold. You can buy a Put to protect against unlimited loss when you buy a stock. You can buy a Put to protect a profit which you already have and don't want to lose. Or you can acquire a Put or a Call to protect you against a commitment which you expect to make at a later date and on which, when you make such commitment, you don't want to take an unlimited risk.
So an option can be a protective device as well as an investment vehicle, depending on how and when it is used. It is advisable to read more on this topic before investing