Winning With Options Trading: From The Basics To Leveraging The Best Strategies For Explosive Income — A Straightforward Crash Course For Beginners by WINNING FINANCE PUBLICATIONS

Winning With Options Trading: From The Basics To Leveraging The Best Strategies For Explosive Income — A Straightforward Crash Course For Beginners by WINNING FINANCE PUBLICATIONS

1

WHAT ARE OPTIONS?
In their most basic definition, an options contract is a written agreement
between two parties regarding another asset (e.g., shares of a company).
This agreement states that concerning this asset, one party has the right to
enforce a specific transaction from the other - specifically, the right to
enforce the buying or selling of the asset, depending on the contract. These
contracts include relevant details such as whether it is a right to buy or a
right to sell, how long this right lasts, and the price at which the transaction
can be carried out. To understand this concept better, let's look at two
different types of contracts first: futures contracts and options contracts.
FUTURE CONTRACTS
These are contracts agreed upon between two parties (a buyer and a seller)
in which one participant agrees to buy a specific asset for a specific price at
a specific time in the future. For example, suppose an investor purchases a
futures contract entitling him to 100 barrels of gasoline for a given price at
a specific date in the future. In this case, he must buy the barrels of gasoline
when the agreed date arrives, even if the price has dropped in the interim.
Just like the buyer of the contract, the seller of the contract must also accept
to sell the barrels at the agreed-upon date for the agreed-upon amount even
if, in the meantime, the price of gasoline has risen.
OPTIONS CONTRACT
While options share almost all the same characteristics with futures, as
discussed further below, there is an essential difference between them. With
a futures contract, the two parties involved must satisfy the terms of the
agreement and therefore make the transaction according to the agreed-upon
conditions. With an options contract, however, the contract gives the
purchaser the right to enforce the contract but not the obligation - hence the
term "option."
Therefore when comparing ordinary options contracts with futures
contracts, with options contracts, the buyer has the right but not the
obligation to activate the contract. In contrast, with futures, the buyer and
the seller have an obligation to fulfill the contract.
In all other respects, an options contract is the same as a futures contract.
The details of the price, date, and asset are all contained within the contract
and set at the time of the agreement. These will all be elaborated on later in
the book.
Like futures, options are financial instruments that are derivatives. This
means that their price is linked to an underlying asset, which means that
their price is intrinsically connected to whatever happens to the asset they
represent. Hence the name derivative - their price is derived from another
asset's value. A typical example of an underlying asset is stocks. In fact, in
this book, we will interchange the terms "underlying asset" and "underlying
stock" since stocks are the most common type of underlying asset.

Winning With Options Trading: From The Basics To Leveraging The Best Strategies For Explosive Income — A Straightforward Crash Course For Beginners by WINNING FINANCE PUBLICATIONS