Options Basics
Options represent the right (but not the obligation) to take some sort of action by a predetermined date. That right is the buying or selling of shares of the underlying stock.
There are two types of options, calls and puts. And there are two sides to every option transaction -- the party buying the option, and the party selling (also called writing) the option. Each side comes with its own risk/reward profile and may be entered into for different strategic reasons. The buyer of the option is said to have a long position, while the seller of the option (the writer) is said to have a short position.
The Trade Below
The trade below is on the stock MU (ticker). What we are looking at is a long call option trade meaning that we believe the stock can go higher. To come to this analysis we use a combination of technical analysis and market understanding that comes from training. Most people typically confuse what strike to buy, how many and what expiration. This can be solved by having rational price targets on where the stock could trade to. From there we can place the trade.
Options represent the right (but not the obligation) to take some sort of action by a predetermined date. That right is the buying or selling of shares of the underlying stock.
There are two types of options, calls and puts. And there are two sides to every option transaction -- the party buying the option, and the party selling (also called writing) the option. Each side comes with its own risk/reward profile and may be entered into for different strategic reasons. The buyer of the option is said to have a long position, while the seller of the option (the writer) is said to have a short position.
The Trade Below
The trade below is on the stock MU (ticker). What we are looking at is a long call option trade meaning that we believe the stock can go higher. To come to this analysis we use a combination of technical analysis and market understanding that comes from training. Most people typically confuse what strike to buy, how many and what expiration. This can be solved by having rational price targets on where the stock could trade to. From there we can place the trade.
