FAQs
Flexibility
When you buy stock, your gain depends only on the price going up. But options may provide potential benefits if a stock rises – or if it falls. That means you can speculate on the future price of a stock, whether it goes up or not.
Leverage
Leverage means you may be able to use less money to gain exposure to the movement of a stock’s price. In other words, with options, you gain market exposure that’s like owning a stock, but you generally commit less money to make that happen and that could mean more flexibility for you and your portfolio.
Hedging
Hedging is about reducing risk. You make trades based on your best judgment, then options can help protect those trades — or your overall portfolio — in case things don’t work out quite like you planned.
Income
One of the biggest reasons some investors trade options is to produce income. Much like a dividend on a stock, options can be used to help generate an income stream. There are options strategies that let you collect money on your existing or future stock positions.
An option is a contract giving the buyer the right - but not the obligation - to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date.
A call option gives the holder the right to buy a stock. Think of a call option as a down payment on a future purchase. A put option gives the holder the right to sell a stock.
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