Abstract
Options trading system allows an investor to either buy or sell options at a later date at a specified price. The options need to be changed to stocks. The reason being options have a limited period of validity after, which they are deemed as “expired”. Call option and Put option are the two categories of options in the option trading system.Options may be referred to as financial instruments, which give an individual the “right but not the obligation” to carry out transactions in the future pertaining to future contracts or underliers (underlying assets).
Options trading system- the procedure:
The options offered by companies are usually priced. The price at, which the options are valued, is usually referred to as strike price. Many a times the strike price is the price prevailing in the market (the actual price). Since the strike price is likely to go up in future the investors usually wait for the price hike. These options are exercised only at a specific time. This may be well understood by an example.If a company is intending to offer 100 shares and the cost of each share is 10 dollars. The option is to be exercised only at a later date. By the time that date is achieved, the price per share may escalate to 15 dollars. It is now that the individual may change options into stocks. By doing so, the investor may buy the stocks at the original price ($10). If he wants to sell the stocks after the specified date, he may earn profits too.
The main aspect, which is to be kept in mind, is that the options are required to be converted to stocks. This may be attributed to the fact that options may be traded for a limited time period because they do not remain valid after a stipulated time period. Hence, they need to be changed into stocks.
It may be mentioned here that options are of two types:
Call options- this is the right given to an investor willing to buy stocksPut options- Extends right to the investors to sell off their stocks.
