Universal Investment Strategies
– Basic Concepts of Options Trading
Options Trading is steadily becoming a popular way for investors and buyers to gain extra
profit and minimize loss on their underlying instruments. If you’re interested in trading
options too then knowing the basic concepts is the first step. Universal Investment
Strategies is an education platform that teaches trading to anyone that is interested.
Given below are the basic concepts that will help you understand how Options Trading
works. However, for in-depth knowledge about how you can best trade options personally,
you can always take the best trading course at UIS.
Basic Concepts of Options Trading
Strike Price
Strike Price is the pre-determined agreed price at which the investors and buyers can buy or
sell the instruments for a period of time. Once the time period is over, the options you are
holding are considered void and the strike price then will also be invalid.
Options Premium
Options Premium, or easily understood as the premium price paid for holding the options,
or options price, is the amount you pay for buying the options. In any case, if the investor
chooses to not exercise the options, he will still have to pay the premium. However, the
method of collecting premium is different for Call and Put Options.
Options Premium = Intrinsic Value + Time Value
Intrinsic Value
Intrinsic Value is defined as the difference between the actual market value of the
instrument and the strike price of the option. The intrinsic value here also reflects the profit
the investors would make if they exercise their holding options immediately.
Time Value
Time Value is determined based on the remaining validity of the option, the volatility, and
the cost required for refinancing the underlying asset. The time value can be numerically
calculated by simply subtracting the intrinsic value from the Options Premium.
At-the-money, In-the-money, and out-of-the-money Option
While holding any option, if the strike price is equal to the actual market price of the
underlying security, then the option is said to be at-the-money.
Now, if you are holding a Call Option and the strike price is less than the actual market price,
then the option is said to be in-the-money. However, if the strike price is higher, then the
option is said to be out-of-the-money.
Similarly, if you are holding a Put Option and the strike price is less than the actual market
price, then that option is said to be out-of-the-money, and if the strike price is higher, then
it is said to be in-the-money.
Universal Investment Strategies, LOS Angeles
Now, what you have known so far are just the basic concepts, but if you want to learn how
to trade stocks, or best options to trade, then you can always sign for the trading courses
available at the UIS. The tutors here custom teach their students so that they can solely
focus on learning how they can trade best.
Each client is our student, and we are here to teach you the best of the trading strategies.
You can always check out our Universal Investment Strategies reviews to get a better idea
about how we work.
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