What exactly are currency options? It all begins when a buyer and seller create a contract where the buyer of the option gains the right to buy or sell a fixed amount of the underlying currency at a specified price on or before the expiration date. However, the buyer may or may not purchase or sell it.
To better understand currency options, we must know what elements they contain. First is the premium or the amount the buyer pays the seller. Second, there is the predetermined price also termed as the exercise price or strike price.
Of course, all currency has its market value which is referred to as its spot price. Finally, there is the expiration date of the contract. If the buyer does not exercise the option by the expiration date, then he loses the premium to the seller.
Furthermore, it is essential to know about the two basic types of currency options. Once the buyer is able to buy the currency for more than its spot price market value , the buyer will then exercise the call option. Next, is the put option which allows the buyer to sell the currency at the strike price. Now the buyer is hoping that its market value will fall while the seller anticipates it to rise. It is then the buyer will exercise the put option when the spot price is less than the strike price.
Once a trader has established a currency call option, this person is able to purchase a given amount of currency for a specified price. On the other hand, a put option entitles the holder to sell a given amount of currency for a certain price. Hence, the main key in trading options is to have time on your side, even if the option costs are higher than those of say a week or less. Does this sound simple enough? Now that you understand call and put options, you have even more power to trade on the stock or currency market.
Consider options that have one month or possibly two until expiration. I understand that when we make a trade its mean we must sell some thing so who is buyer behind your side because in stock market this is necessary for sell purchase your shares. Chris, Who are you? I am sure many ask themselves that q. So can we meet you? Can we see you? I do not know actually what it is, but beyond trading for sure, probably even beyond business.
Thanks for this information Chris. I would like to ask if you could possibly give us an example of an option trade we could take based on our primary trading system on LuckScout. Before you read the rest of this article This eBook shows you the shortest way towards wealth and financial freedom: Article by LuckScout Team.
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