An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
As the value is consequent from some other thing, an option is a derivative.
It is a security like stocks with a binding contract. When the expiry date is over, the option no longer has any value. A trader loses the money that they paid for the option. On the other hand, an investor is not required by law to sell or even buy the asset that is fundamental, for which they have taken the option.
Types of Options:
This provides the holder the legal right to buy an asset within a definite period of time and at a definite cost.
This provides the holder the legal right to sell an asset at a definite period in time at a definite price.
Those who purchase the options are recognized as the holders, and those who sell them are identified as writers.
An option trading that holds on online trading can be eminent under the following categories mentioned below:
Long-term Options: Under these options, the holding time is one or many years.
Exotic Options: Under non-standard options, other than call and put which is also known as the vanilla options are classified as Exotic options.
Under binary options, payoff is prearranged to be either a fixed amount of compensation if the option expires in the money or nothing at all if the option expires out of the money. The holder cannot select to buy or sell the underlying asset; the option is by design exercised.
This option is traded on online trading platforms on the internet which are not exercised by regulations.
Despite the fact that the binary option seems rewarding for investors, they are risky of being deceitful as they are traded on non-regulated sites.
Momentum Trading: The traders who find a stocks that is incessantly and considerably moving upward with a high volume. These traders trade on that to get a high profit.