Steps To Follow While Options Trading

options trading

62.58 billion. That's the total number of futures and options contracts traded globally in 2021, according to data released by the FIA (Futures Industry Association).

That's up 33.7% from 2020. Last year was the fourth year the “global exchange-traded derivatives markets set a record above the prior year in terms of total trading activity.”

Options trading has become one of the most preferred investment mechanisms in recent years. For newbies, it can be a daunting task. There's too much information available in the market, which often needs to be clarified.

Options Trading

What Are Options Contracts?

Options contracts are derivative contracts that give buyers the absolute right (but not the obligation) to buy or sell an underlying asset at a pre-determined price and by a specific future date.

1. Open an Options Trading Account If you want to trade options, you must have an options trading account. Compared to a simple brokerage account for stock trading, an options trading account usually requires greater capital involvement.

Steps To Follow While Trading Options

After successfully opening the options trading account, you must decide on the type of options contract you want to enter. If you expect the market to increase, buy a call option or sell a put option.

2. Select The Options Contract

An option contract is valuable only if the underlying stock price closes the option's expiration period “in the money,” i.e., either above or below the strike price. So, predicting the correct strike price is extremely important.

3. Predict The Strike Price

All options contracts have an expiry date, ranging from days to months to years. This period, too, cannot be conjured up from thin air. Daily options generally possess a higher risk.

4. Predict The Option Time Frame

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