Once the expiration date of the options contract is reached, the contract holder must choose to either exercise their rights or forfeit the privileges they have purchased. The value of the premium can fluctuate dramatically based on the amount of risk the writer of the contract is taking on when they sell to the investor. Because of this, a premium, or additional fee, will be added to the contract price that the investor must pay. The individual selling the options contract must be provided with some form of incentive to initiate the trade. With that in mind, the chances are good that an investor will be able to find a market for their specific interest. Options contracts can cover a variety of investment assets, ranging from securities to commodities. Options contracts are bought and sold through the trading week through the major exchanges, one of the most popular being the Chicago Board Options Exchange. For example, if an options contract provides the contract holder with the right to purchase an asset at a future date for a pre-determined price, this is commonly referred to as a " call option." Inversely, when an options contract grants an individual the right to sell an asset at a future date for a pre-determined price, this is referred to as a " put option." The Basics of Options TradesĪn options contract is commonly distinguished by the specific privileges it grants to the contract holder. You can calculate the return on an options trade by first determining total profit or loss from the sale and then comparing this value to the initial purchase price.
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