Who’s the Boss? You Are.
Consider an options strategy to ride the markets like a pro.
How does options trading work?
Let’s start with the options definition. An option is a contract that allows someone the ability to buy or sell a security at a date in the future. One option contract typically covers 100 shares of stock.
When you opt in to options during enrollment, you may purchase or sell options.
Getting started with options trading. You've traded stocks for a while and developed a good feel for the market. And now you want to try your hand at options. Axos Invest’s platform has a clear, easy-to-use interface for options trading. But first, some background. Like the name suggests, options are essentially contracts giving you the option to purchase or sell an investment at a certain price within a defined period of time. When you predict a stock or other asset will increase in value, you could purchase a call option. When you believe it will decrease in value, you could purchase a put option. Keep in mind, you will need to exercise the option contract pursuant to the terms of the contract prior to or on the day the contract expires. Once the term expires and if your prediction was right, profit on the purchase or sale. If your prediction was wrong, you're only out the money you spent on the option called the premium. Of course, that's just the tip of the iceberg because there are dozens of ways to customize options trading to get the risk reward profile you want. Before getting started, take some time to study options and really understand their benefits and risks. AxosInvest.com has educational materials and market research tools, plus an application to get you approved for options trading.
Options Holder
If you purchase an option, you are known as an options holder. Options holders have the right to buy or sell the underlying asset. Holders may exercise the contract (meaning to use their right), sell the contract, or allow the contract to expire.
Options Writer
If you sold an option, you are known as an option writer, which means you are obligated to buy or sell the underlying asset if a holder exercises the contract.
No matter how complex options may be, they all boil down
to two types – calls
and puts.
A call is an option that gives the holder the right to purchase an asset at a stated price within a specific timeframe.
A put is an option that gives the holder the right to sell an asset at a stated price within a specific timeframe.
A premium is the price of an option contract. Holders pay the premium; writers receive the premium.
An expiration date marks when an options contract expires. Expired contracts cannot be exercised.
A strike price is the agreed-upon price of the option’s underlying asset. Even if the market goes up or down, the strike price must be honored.
Options involve risks and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.
Understanding the Holder-Writer Relationship
| Call Options | Put Options | |
|---|---|---|
| Holder | Has the right to buy an option’s underlying asset. |
Has the right to sell an option’s underlying asset. |
| Writer | Obligated to sell an option’s underlying asset if the holder decides to exercise the option. |
Obligated to purchase an option's underlying asset if the holder decides to exercise the option. |
| Call options | Has the right to buy an option’s underlying asset. |
| Put Options | Has the right to sell an option’s underlying asset. |
| Call Options | Obligated to sell an option’s underlying asset if the holder decides to exercise the option. |
| Pull Options | Obligated to purchase an option's underlying asset if the holder decides to exercise the option. |
Opportunity knocks.
If you want to increase your trading opportunities, you might find that options offer more possibilities. Options trading serves as a useful strategy when you make efforts to reach your investment goal in any market condition.
Trading options presents you with the ability to manage your investment risk and empowers you to implement a speculative strategy or protect a position.
Trade your way.
Open an account in just a few simple steps and start trading immediately.
Want a hands-off approach? Check out Managed Portfolios.