Before, I understand most rational investors in the stock market is to buy low and sell high, it is not true; if we understand the options, and use this leverage investment vehicles greatly increase their potential gains in the stock market, of course, there may be a great loss oh. Next, comb simple operating mechanism option, due to the mode of operation options are American options and European options, described here it refers to the American option.
The concept (a) options
Options, is the choice of what to do or not to do; the basic idea behind it is that allows someone to pay for the right to buy at a future date, or sell the stock.
Operating mechanism (two) options
Assuming that Apple stock holders agree to a few months after the hands held some stocks (such as 300 shares) at a slightly higher price than it is now (commonly known as "carry out price") changed hands for you, so you will have in the future option to buy Apple stock, purchased for this right, you have to pay a certain amount of premium (the premium is somewhat similar to a deposit, tolls, but the deposit is not refundable). If the transaction to proceed, you bought the right to buy any shares negotiated (for example, 300 shares) of time in the coming months (eg 3 months) within. Such behavior is the option. Future when Apple's stock price higher than the price at which you buy options you can to the original agreed price (also known as the "fulfillment price") to buy stocks, and earn huge profits. If the opposite is true, that is not Apple shares rose more than fulfill your price, and even crash, and then you can choose not to exercise the option, that is not to buy the stock. In this case, you just lost the right to own gold when the call option pay. This process there are two points to note, first, to fulfill the price, which is the buyer and seller negotiate a good price, when the two sides to exercise the option must be traded at this price; the second is the premium, which is paid to the seller of the buyer money, As long as the completion of the transaction, regardless of the subsequent buyer whether to exercise the option, which has been the premium seller in the bag.
(C) understand options
Option fundamentally is to give you an option to buy a certain number of shares before a certain date in the future at a fixed price. But you can also buy yourself another option to sell a certain number of shares before a certain date in the future at a fixed price. This option allows you to make money when stocks decline, similar to shorting stocks. This situation is to fulfill the price you sell the stock to someone else, but when you fall or not these stocks rose more than the price performance of others will choose not to exercise the option, so you still get from others to the premium, and you the stock did not decrease.
Allowing for some time to buy shares at a fixed price option is called a "call option" allowing the next period to sell the stock at a fixed price option called "put option." Options, both allow you to speculate based on stock movements, it can also play the role of financial leverage. The following two examples to illustrate the leverage options.
(1) Suppose you have $ 1,000, Apple's current trading price of $ 100 per share, so you can buy 10 shares of Apple stock; if Apple's stock price rose to $ 200, then your investment income doubled, became $ 2,000.
(2) Now suppose you also have $ 1,000, and said to buy Apple stock, but this time you are using options and fulfill the price is $ 110, the size specified in the option contract is 100 shares, then you need to pay premium of $ 10 / share x 100 shares = $ 1,000, so you bought 100 shares of Apple stock purchased in the coming months at a price of $ 110 per share option.
In contrast, cases 1 and 2, with the same $ 1,000 to buy stock, the first case you can buy 10 shares, while the second case you can buy 100 shares. If Apple's stock rose to $ 200 per share, then the first case you can only earn $ 1,000, while the second case (by way of option), you can earn 100-110 * 200 * 100 * 100-10 = $ 8,000, which means that when you sell 100 shares at $ 20 per share, you earn $ 80, seven times the first way of it. Of course, this is the ideal state, if the development of the matter is that it did not do, you will eventually lose $ 10 call option, which is the option of leverage. Leverage options let you quickly earn a lot of money, more money may lose it faster.
(D) put options
Call option is very speculative and risky move, if you do not follow the development plan, it may cost you a lot of money. In addition to this way, there is another way - put options, also known as sell options (writing an option). Then you create an options contract for the he can buy, you must become a certain price to buy the obligation to sell the stock or party (I did not buy the sort of situation, embarrassing, <escape), of course you can charge premium other. In fact, the risk is higher than the price of the put option to buy the risk, because the beginning you do not know what is the cost if the market trend against your plan, then your loss is even greater.
(V) complex options
The complexity of options than call options, put options; in addition, options can also be combined together with options, together with stock trading may be combined to form a variety of complex trading positions. This knowledge, raise awareness and then wait to add it.