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In this article we will review the benefits of commercial contracts. Here we define as contracts and option contracts primarily to study the advantages and benefits of trading options contracts rather than negotiate the underlying shares. We believe there are many misconceptions that exist between the investment community and this is our attempt to dispel some doubts.
First of all, the contract is a derivative of stock options. Therefore, we must remember that it is a derivative of here. An options contract gives the holder the right to buy or sell 100 shares of baseline within the time limit set at a specified price, which is a pre-determined. This statement may seem confusing, so we have to clarify with an example. Apple is one of our favorite titles, in order to use the example of AAPL, which is Apple Inc., stock symbol. Suppose that AAPL is trading $ 200 on the stock market right now and we think that the price increases by about 10%, when the next quarterly earnings release that is 6 weeks away. We could buy a stock $ 200 per share and expects the share price appreciated by 10% to $ 220 for the next 6 weeks. It would be a good return. We could also buy a $ 200 strike price call options contract, which expires after the release of earnings, sometimes by paying a fee.
The biggest misconception is that the option contract trading is a high-risk business. It is not necessarily true. Depending on how you play, the options contract trading really offers a significant reduction in risk. Leading by example above. Now suppose that the AAPL stock price forecast was wrong. Instead, go up by 10%, the shares fell by 10%. In this situation, the risk of an option agreement for the trader is limited to $ 1,000, which is a bonus that is paid. On the other hand, stock investor would have lost the value of $ 2000. So, head down, without restrictions, but downside risk is limited to trading options contracts.
An option contract trading offers a lot of other benefits and flexibility, we can not go to this article. Some of the most popular strategies for the sale of call options to cover, buy puts (short stock), call-put option trading spreads, etc.