Explain options trading with examples
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Moomoo is another great alternative for Robinhood.
This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes. Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees.
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Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients. Tastyworks is a sophisticated options and futures broker aimed toward experienced traders.
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The platform was designed by the founders of thinkorswim with functionality and precision for complicated options trades and strategies. Tastyworks offers stocks and ETFs to trade too, but the main focus is options.
Options Trading 101 – What You Need To Know To Start
Webull, founded in , is a mobile app-based brokerage that features commission-free stock and exchange-traded fund ETF trading. Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling.
Properly used options can allow you to engage in strategies and encapsulate market views that would otherwise be difficult for stock traders. Modern technology allows you to learn and implement everything from simple long calls to more sophisticated strategies. Traders and investors need education about how to make the most of this incredible market because it can otherwise become a missed opportunity or a very expensive hobby. The only problem is finding these stocks takes hours per day.
Fortunately, Benzinga's Breakout Opportunity Newsletter that could potentially break out each and every month. You can today with this special offer:. Click here to get our 1 breakout stock every month. Benzinga Money is a reader-supported publication. We may earn a commission when you click on links in this article. Learn more. High Probability Options Trades Sent to Your Inbox Twice monthly get all the key details on a top trade straight from a professional options trader.
Best For Advanced traders.
Overall Rating. Read Review. ET and post-market hours 4 p. ET No minimum deposit to open an account. Active trading community with more than , app users. Cons No phone or chat support. Best For Options Trading.
Put Options and Call Options
Best For Novice investors Retirement savers Day traders. Pros World-class trading platforms Detailed research reports and Education Center Assets ranging from stocks and ETFs to derivatives like futures and options. Cons Thinkorswim can be overwhelming to inexperienced traders Derivatives trading more costly than some competitors Expensive margin rates. Best For Options Education. Best For Options traders Futures traders Advanced traders.
Options trading may seem overwhelming at first, but it's easy to understand if you know a A popular example would be using options as an effective hedge against a declining This is the key to understanding the relative value of options. The strike price of $70 means that the stock price must rise above $70 before the call option is worth anything; furthermore, because the contract is $ per share, the break-even price would be $
Pros Powerful platform inspired by thinkorswim Multiple order types and strategies Cheap options commissions. Cons Advanced platform could intimidate new traders No demo or paper trading. Best For Intermediate Traders and Investors. Webull is widely considered one of the best Robinhood alternatives.
For example, a call option goes up in price when the price of the underlying stock rises.
Options Strategies — with Examples
And you don't have to own the stock to profit from the price rise of the stock. A put option goes up in price when the price of the underlying stock goes down. As with a call option, you don't have to own the stock. But if you do, the put acts as a hedge - as the stock price goes down, the value of the put goes up so you are hedged against the downside. You make money on options if your bet on the direction of price movement of the underlying stock is correct. If not, you'll probably loose most or all the money you paid for the option.
Options are very sensitive to changes in the price of the underlying stocks. Like gambling you can make or lose money very quickly. Because option prices change quite rapidly, owning them requires that you spend a significant amount of time monitoring price changes in the stock and the option.
And if you're wrong about the price movement, be prepared to lose all or a significant portion of the money you paid for the options. A call is a contract that gives the owner the right, but not the obligation, to buy shares of a stock at a fixed price, called the strike price, on or before the options expiration date.
If the value of the stock goes down, the price of the option goes down, and you could hold it or sell it at a loss. The price that you pay for a call option depends on many factors two of which include: the duration of the contract the longer the duration, the more you pay and how far the current price of the stock is from the strike price of the contract. If you own a stock, you may buy a put as a form of insurance. If the stock falls in price, the put rises in price and helps offset the paper decline in the underlying stock.
If you don't own the stock but think it will go down in price, you buy the put to profit from the decline in price of the stock. If the stock price declines, the value of the put rises and you would sell the put for a profit. If the stock increases in price you may sell the put for a loss.
A put option is a contract that gives you the right, but not the obligation, to sell a stock at a preset price. The price that you pay for a put option depends the duration of the contract the longer the duration, the more you pay and how far the current price of the stock is from the strike price of the contract. Put buying is different from selling short. With a put option your only liability is the price you paid for the put.
With a short sale, you have an unlimited downside liability if the stock goes up. Also, the proceeds from selling short are in a margin account so you have to pay interest and meet margin requirements. Buying puts is a more conservative way of betting on a stock declining in price. In most cases you must own shares of the stock for each contract you sell - this is called a covered call.
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Therefore, if your stock gets called away, you have the shares in your account. You can sell covered calls to generate a stream of income. If the stock price does not rise enough during the period of the contract, you won't get called and won't have to sell the stock so you keep the money you received when you sold the call.