All smart investors always learn to understand the inherent risks associated with their investment decisions, and they always explore all the options that are available to them. When it comes to investing in options, you can never ignore the concept of “leverage”. Any investor worth his/her salt will never hesitate to make use of leverage. As an option trading investor, it is your duty to make use of every leverage available to you. The best way to do that is to get an IQ Option Contract. Just like the majority of other options, an IQ Option contract allows you to buy or sell the underlying stock at a fixed price (the “strike price”), in the entire range of the market (the “range”) at any given time during the duration of the option contract.
In layman’s terms, an option contract is a security that gives the buyer the right to purchase or sell a certain underlying security at a stipulated date and for a particular price. The strike price is referred to as the premium of the option. But note that this premium is never less than the total of the premium plus the risk weight of the option. Since options and stocks have different characteristics and are traded on different markets, companies generally provide the option buyers with a choice of trading on the basis of risk-weights or a combination of both.
Stocks and options are similar in many ways. They are both long-term financial instruments. They both give the investor the right but not the ability to purchase or sell a specified amount of the underlying securities within a defined time period. Although options give the buyer the right to buy or sell the underlying securities, stocks give the buyer the right to buy or sell the underlying securities only within the time period specified in the stock option contract. Both options and stocks have expiration dates.
Investors who are new to option trading should not invest in equity and bond options as these options involve higher risks. Bond and equity options are usually traded on stock exchanges. The price of an option is typically determined by the volatility of the underlying market. In the same way, the price of stock options depends on the value of the particular company that is being identified in the option contract.
Investors who are new to stock options may make wrong choices. An option contract between two parties is known as an ‘over-the-counter’ option contract. Ordinary stocks have expiration dates. However, an option contract has no expiry date and the investor can hold the option till the specific date specified in the option contract.
As per the laws of various countries, companies that issue equity options to their subscribers must have enough financial resources to execute the plan outlined in the option contract. Usually the financial resources of the company play an important role in determining the price of the equity option. Some investors go for equity securities and others for company shares. The financial ratings of the company also play a crucial role in determining the price of the option.
Some companies have been reported to have abused the sell and purchase option. A trader can sell an option contract for an excessive premium before it expires. Once the option reaches its expiration, the trader will have to incur the cost of the stock. This is considered to be an unfair practice because the trader was not actually buying any stock but just selling an option.
There are many brokers who are associated with stock broker companies and help traders to decide on an appropriate option trading strategy. These companies also provide training on option trading. There are many internet sites that help investors understand the basics of option trading. Several companies offer advice on various options related issues like ‘put’ and ‘call’ options. These companies also guide traders on the different aspects of stock brokerage.