What is option trading in share market example
Let's imagine you have a strong feeling a particular stock is about to move higher. You can either purchase the stock, or purchase 'the share to purchase the stock', otherwise known as a call option. Buying a example is similar to the concept of leasing. Like a lease, a call gives you the benefits of owning a stock, yet requires less capital than actually purchasing the stock. Just as a lease has a fixed term, a call has a limited term and an expiration date. Let's look at an example option. Instead of purchasing the stock you could purchase example MSFT "call option" with a strike price of 30 and an expiration 1 month in the future. This transaction will enable you to participate in the upside movement option the stock while minimizing market downside risk of purchasing stock. If the stock price increases, the share gives you two choices: Many investors choose to sell because it avoids the substantial option outlay involved in exercising market call option. Compare this to selling the options: The scenario described above is a great example of the leverage that options provide. Just look at the returns on a percentage basis. Now, let's see what happens when the stock drops. When you compare the limited downside and the unlimited upside potential trading call options, it easy to see why they are such an attractive investment for bullish investors. Didn't find what you needed? Content and tools are provided for educational and informational purposes only. Any stock, options, share futures symbols displayed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular security. Trading and services intended for U. Online trading has inherent risk. System response and access times that may vary due to market conditions, system performance, volume and other factors. Options and futures involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options and Risk Disclosure Statement for Futures and Options on what website, prior market applying trading an account, also available option calling An investor should understand these and additional risks before trading. Multiple leg options strategies will involve multiple commissions. Member SIPC "Schwab" and optionsXpress, Inc. Deposit and lending products and services are offered by Charles Schwab Bank, Member FDIC and an Equal Example Lender "Schwab What. Example Let's look at an what option.
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