How to do Options Trading?
I think I understand the how to do options trading like calls and puts. What I need help is why an option May put has a strike price of 55 when it’s underlying stock is at 52.03 in Feb? Isn’t the put for buying it down?
Related posts:
When an option is issued, a range of strikes are issued around the the current stock price. ie a stock at 52.03 may have options for calls and puts at 40, 45, 50, 55, 60 which varies depending on market practice. The strike price is not the price you pay but the price at which you can buy (call) or sell (put) the stock.
If on the last moment of the expiry date you own a put with a strike of 55, you will make 2.97.
If you own a call 55 on the other hand, you would not excercise it, as it’s 2.97 cheaper to buy the stock directly.
DONT trade options until you know a LOT more !!
When new option series are released strike prices are set above and below the current price. As the stock price moves new strike prices are added to meet market demand.
If the share price is below the strike price of a put it is “in-the-money”. If the stock price continues to fall the put will be further in-the-money and become more valuable.
Reverse the above for a call option.
A put is an contract that will increase in value as share price falls. Owning a put that is in-the-money is a good thing.
Put options gives you the right, but not the obligation to sell stocks at the strike price, no matter the market price, for some time until expiration.
I see that you are actually totally confused when it comes to option fundamentals even though you think you understood the basics.
A stock can have a whole range of option strike prices above, below and at the price of the stock. This is what we call “in the money”, “out of the money” and “at the money”.
Options trading is way too big a topic to state everything here.
Look to sell options and only buy LEAPs on any options cos atleast 75% of the time your options will expire worthless. Learn how to manage your greeks and use weeklys and volatility disparity to find opportunities. It can be found every single as stock or futures prices explodes and contracts. If you have to buy ITM or OTM, hedge to lock and increase your profits without risk of loss ..