Member LoginOptions Trading: What is an Option?
An option provides the holder, the right; but not the obligation - to buy or sell a set number of shares, on or before a set date, at a predetermined price.
In options trading, if you purchase the option, you can choose to use your right. This is known as exercising the option. By exercising your option, you will purchase or sell the set number of shares as detailed in the option contract.
As an option holder, you do not have to exercise your option - it is your choice. If you choose not to exercise your option, the option will expire worthless.
- An option to buy shares is known as a CALL option.
- An option to sell shares is known as a PUT option.
Options are very versatile - they allow traders to access leverage to boost returns, to manage risk by using options to hedge their portfolios, and to potentially profit in up, down and even sideways markets.
To learn to trade Options, attend one of our FREE options trading education seminars.
