The category of contract which is permitted to sophisticated investors. This type of agreement is known as stock option Trading. The strength of the options is prone to its functionality. Options admit any one to change or corrections of their positions with respect to the condition of the status prevailing. The nature of Options is not predictable or conventional according to the requirement of the investor. The position is safely conserved from downtrend to absolute speculation on the brisk movement of the market or index. Risk is always a part and parcel of options.


The multiplicity conditions involved in this contract itself a indicator of more risks. Every one cannot directly involve themselves in this type of contract without studying carefully and understanding the conditions. Risk is always accepted very much in stock options. Generally people with more money are fond of taking risks and investing in stock options. Most of the people who are very much involved in share market are of the strict opinion that one should avoid trading in stock options because of the losses one is bound to get. The people who are very much familiar with equity trading which is considered to be the safest of the trading initially will not involve with stock option trading. Even somebody suggests you to do trading in options, one should not straight way enter into stock option trading. Only one should enter into this trading with the experience and guidance of the experienced people who had participated in stock options trading and not on the mere advice given by somebody. If Stock option trading is done properly one can expect huge amount of money into their pockets.

What is an option:The right granted to a person for buying a stock which is in the options trading category. The accountability is not there on buying or selling the stock at an on target set rate on or before a certain date.The example given below elucidates to have a very clear understanding on the stock option trading. Let us say that the total cost of the piece of land is some X in value. The current owner of the land offers the land for sale. The person who is interested in buying the piece of land from the owner tells him that he would pay the amount in five installments and the owner agrees for the terms and conditions. After the second month there is an increase of rate in the value of land due to various projects that had come up in the area. After the fifth month it is seen that total value of the land has gone up by few extra money.


According to the agreement signed owner has to sell the land for the agreed rate and buyer stands to gain some money. In the same case there is a chance that land value may go down due to detrimental effects that had taken place in the surrounding place. The value of the land goes down by some money. The buyer has to bear the loss in the overall value of the land. The owner who sells the piece of land need not worry about the reduction in the value of the land. The owner has every right to sell the land for the initially signed and agreed upon rate. The two cases clearly explain the basic things involved in its operation.



The Stock Trading Options has two types, they are: Calls and Puts.Call option is nothing but the rights granted to a person in exercising buy of a particular stock at definite price within certain date. Calls have the coincidence to that of long holding of stock. Investors have the anticipation that the stock might move upwards before the contracts ends. The other option available is put, right exercised to sell a stock a definite price and within a certain date. The buyers of the stock expect the stock to go down before the agreement ends.


Generally the people who involve in Stock Option Trading are of four types depending on the conditions prevailing. They are Call Buyers, Call Sellers, Put Buyers, and Put Sellers. The holders are the investors who buy options and writers are the people who sell options. If the stock is held for a long periods, they are said to be buyers. If the stock is held for short periods, they are called as sellers. The significant difference between call holders put holders, they are not accountable for buying or selling, also they have the option of choosing, whereas call sellers, put sellers are accountable for buying or selling, they are asked to promise for exercising their right (buy or sell).


The important definitions need be to be understood for the participation in Stock Trading Options. They are given briefly below.Strike Price: The price at which a primitive stock can be bought or sold is called Strike price. For calls this price must be above and for puts this price should be below to gain necessary amount.Listed option: If the amount is invested in national options exchange, this is called as listed option. The strike prices are kept fixed.


Contract: The allotment of a particular number of shares to a company under the category of listed option.Intrinsic value: The share price < or > than strike price is known as intrinsic value.Premium: The cost of the option as a whole. Premium is based on the factors listed above and exact determination of it is very difficult.