Options are contracts that give an owner the right (but not the obligation) to buy or sell an asset at a given price within a specific time period. Investors trade options to reduce risk or take on greater risk by speculating on a stock’s performance. Trading options can also be a way to generate income for the option seller.
Your financial professional may recommend options as a strategy to protect or maximize your portfolio performance. There is a great deal to understand in regard to options and option strategies, but suffice to say it’s not something to be pursued lightly and should only be undertaken with the guidance of a financial professional.
A simple explanation:
Buy a Call: A “call” option gives the owner the right to buy an asset at a stated price within a specific period of time.
Sell a Call: When you sell a call, you are obligated to sell your shares to the buyer of the call at the stated price within a specified time if the buyer exercises the contract.
Buy a Put: A “put” option gives the owner the right to sell an asset at a stated price within a specific period of time.
Sell a Put: When you sell a put, you are obligated to buy shares at the stated price within a specified time if the buyer of the put exercises the contract.
If you choose to engage in options trading, do your homework, and be sure you understand the risks involved. Work with your financial professional to ensure that options trading fits into your overall financial plan.