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Mechanics Of Option Investing

By buying and selling options, some people make a comfortable amount of money. The difference between options and stocks is that you can lose all your money option investing if you pick the wrong option to purchase and unless the company goes into bankruptcy, you will, however, only lose some investing stocks. While options go up and down in price, anything but the right to sell or purchase a particular stock are what you are actually really buying.

Options involve two parties and are either puts or calls. Often times the writer is the person selling the option but this is not necessarily the case. Once you purchase an option, selling the option for a profit is your right. The price in the contract by a specific date or the strike price is the right to sell a specified stock at the strike price which is given to the purchaser by a put option. The writer of the contract has the obligation to purchase the stock if the buyer wants him to do that while the buyer, in the other hand, has no obligation to sell if he chooses not to do that.

Purchasing put options are normally people who own a stock they fear will drop in price. By purchasing a put, if the price drops then they insure that they can sell the stock at a profit. If the price drops on the stock before the expiration date, gambling investors make a profit by buying the stock and selling it to the writer of the put at an inflated price. Selling it for the price strike price and then repurchase the same stock at a much lower price are those who own the stock sometimes, thereby locking in profits and still maintaining a position in the stock.

Call option is the contradictory of a put option. When an investor does call option investing, although he has no obligation to purchase it, he buys the right to purchase a stock for a specified price. A writer stands to make extra money by selling a call option if a writer of a call option believes that a stock will remain the same price or drop. If the price does not rise on the stock, the writer makes a profit from the sale of the option while the purchaser will not exercise the call option. However, the buyer of the call option will exercise the option and the writer of the option must sell the stock for the strike price designated in the option if the price rises. In a call option, the purchaser is believing that the price will increase while the sell is betting that the price will go down or remains flat.

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