Mechanics Of Option Investing
Making a comfortable amount of money are some people who buys and sells options. Unless the company goes into bankruptcy, you will only lose some investing stock if you pick the wrong option to purchase when you lose all your money option which is the difference between options and stock. The right to sell or purchase a particular stock are all you are really buying while options go up and down in price.
Either puts or call and involving two parties are what makes an option. Although not necessarily, the writer is usually the person selling the option. You also have the right to sell the option for a profit once you purchase an option. A put option gives the right to sell a specified stock at the price in the contract by a specific date, or simply called the strike price. If he chooses not to sell, the buyer can do just that while the writer of the contract, whether he wants to or not, is obligated to purchase the stock if the buyer wants him to do that.
Owning a stock they fear will drop in price are normally people who purchase put options. By purchasing a put, if the price drops then they insure that they can sell the stock at a profit. Gambling investors may buy a put and they can make a profit by buying the stock and selling it to the writer of the put at an inflated price if the price drops on the stock before the expiration date. Sometimes, those who own the stock is going to sell it for the price strike price and then repurchasing the same stock at a price which is much lower and locks in profits and still maintaining a position in the stock.
Just opposite of a put option is called call options. When an investor does call option investing, although he has no obligation to purchase it, he buys the right to purchase a stock for a specified price. A writer stands to make extra money by selling a call option if a writer of a call option believes that a stock will remain the same price or drop. Making a profit from the sale of the option is the writer and not exercising the call option is the purchaser if the price does not rise on the stock. However, if the price rises, the writer of the option must sell the stock for the strike price designated in the option while the buyer of the call option will exercise the option. In a call option, betting that the price goes down or remains flat ate the writers or seller while believing it will increase are the purchasers.
Source: how to read options chain