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Options to trade

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options to trade

The risk to reward ratios for long and short options trade are as follows: Long Trade Entry type: Buy a Call or a Put Profit potential: Limited to the options premium Short Trade Options type: Sell a Call or a Put Profit potential: Limited to the options premium Risk potential: However, this is not a complete risk analysis, and in reality, short options trades have no more risk than individual stock trades and actually have less risk options buy and hold stock trades. Options Premium When a trader buys an options contract either a Call or a Putthey have the trade given by the contract, and for these rights, they pay an up front fee to the trader selling the options contract. This fee is called the options premium, which varies from one options market to another, and also within the same options market depending upon when the premium is calculated. The options premium is calculated using three main criteria, which are as follows: If an option is at the money, or out of the money, its premium will not have any additional value because the options is not yet in profit. Therefore, options that are at the money, or out of the money, always have lower premiums i. The more time that an option has before its expiration date, the more time there is available for the option to come into profit, so its premium will have additional time value. Conversely, if an options market is not volatile i. An options market's volatility is calculated using its long term price range, its recent price range, and its expected price range before its expiration date, using various volatility options models. If the market then moves trade the desired direction, the options contract will come into profit in the money. There are two different ways that an in the options option can be turned into realized profit. The second way to exit a trade is to exercise the option, and take delivery of the underlying futures contract, which can then be sold to realize the profit. The preferred way to exit a trade is to sell the contract, as this is the easier than exercising, and in theory is trade profitable, because the option may still have some remaining time value. options to trade

How to Make Money Trading Options - The Vertical Spread

How to Make Money Trading Options - The Vertical Spread

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