A lot of traders in the forex trading market often mistakenly identify stock option as a substitute for a higher leverage and has a lesser value as a requirement of a capital because it is used as a bet to direct a stock’s price.
However, stock options are far more complex and have a lot of terminologies that needed to be remembered by traders in order for them to master this aspect of trading.
In this short article, let me give you a run through about the important terminologies of stock options trading that will be useful for traders when it is needed the most.
First off, in the forex trading market, there are two types of stock option which are named as calls and puts. If you purchase a call, you will earn the rights but not the obligation to buy a stock for a strike price at any given time before the option expires. Put meanwhile gives you the right but not the obligation just like call but you can strike prices at any given time before it gets expired. Puts and calls are mostly used when dealing with stock options trading.
Here are the terms you should know about stock options:
In other terms, this is what they call the premium. The buyer does not have an option to lose the initial premium based on what the contract’s payment appears regardless of what will be the circumstances that underlie the security. It is risky for the buyer if the amount of the payment is more for the given option of the stock they are planning to buy.
There are basically two styles of the option, the American and the European which has its own distinct characteristics that makes each other unique. The American style option can be used at any given time from the date of the stock’s purchase and its expiration date while the European-style option can only be used during the expiration date of the purchase of the stock but the latter is widely used in the index options of the forex market scene.
As a trader, you should always know that a stock option is not available for any given price. Stock options are traded between 50-cents to one-dollar and can raise up between $2.50 to $5-dollars for the higher valued stock options.
You should also have to know that stock options have its own expiration date. The common stock options can last up to nine months after it was first listed as available for trading.
In the regular trading scene, a lot of traders utilize their stock options for a major strategic move of their stocks but due to its complexity, stock options needs a lot of time to master its uses and functions in the world of forex market.