If you're just beginning with binary options, then you will likely have heard of 'call ' and 'put ' terms. But you may not yet know what do these terms mean? Before beginning with this, it is necessary for you to appreciate these 2 terms. Many times it's obvious that they both refer to a same thing, but there's a real difference between them, and such trading relies fundamentally on that difference.
So before you give yourself a friendly welcome to options, please be conscious of these two terms for your own benefit. I've attempted to shed light upon these concepts for you through an example:
- Call option: suppose a trader is playing this game in market. He/she will be able to perform a bet on any company's future expansion. Imagine he/she gambles that after 1:30 pm, stock prices of Apple Incorporated. Will go above $660. Let us say, it is 12:30 pm at this time and now its share prices are $625. So for performing this bet, he/she will place a 'call ' option.
- Put option: in the above scenario, on the same time (12:30 pm), if the binary options trader thinks that Apple's stock prices will go below $615, and he/she wants to place a bid on it, then he/she is going to place a 'put'.
Now note in the above example that $625 is the strike cost of this contract. It is the one that's made when the contract is being written. The time for which the option has been placed (1:30 PM in this case) is sometimes known as expiration time of the contract. So fundamentally, it is placed when financier thinks the market will go higher than the present price.
From another viewpoint, when the trader thinks that it will go below this price, a put is placed. To make money thru calls, the market price at the expiration time must be higher than the strike price. Contradictorily, for a put to make money, the selling cost must be lower than its opposite number at the expiration time. If the individual gains profit from his deal, then the option is said 'in the money ' or ITM for short. If investor looses his/her amount, then it is announced 'out of the cash ' or OTM.
So that was the greatest difference between call and put. I hope you understand it now, and will make benefit from it in your binary options trades. Good Luck!
So before you give yourself a friendly welcome to options, please be conscious of these two terms for your own benefit. I've attempted to shed light upon these concepts for you through an example:
- Call option: suppose a trader is playing this game in market. He/she will be able to perform a bet on any company's future expansion. Imagine he/she gambles that after 1:30 pm, stock prices of Apple Incorporated. Will go above $660. Let us say, it is 12:30 pm at this time and now its share prices are $625. So for performing this bet, he/she will place a 'call ' option.
- Put option: in the above scenario, on the same time (12:30 pm), if the binary options trader thinks that Apple's stock prices will go below $615, and he/she wants to place a bid on it, then he/she is going to place a 'put'.
Now note in the above example that $625 is the strike cost of this contract. It is the one that's made when the contract is being written. The time for which the option has been placed (1:30 PM in this case) is sometimes known as expiration time of the contract. So fundamentally, it is placed when financier thinks the market will go higher than the present price.
From another viewpoint, when the trader thinks that it will go below this price, a put is placed. To make money thru calls, the market price at the expiration time must be higher than the strike price. Contradictorily, for a put to make money, the selling cost must be lower than its opposite number at the expiration time. If the individual gains profit from his deal, then the option is said 'in the money ' or ITM for short. If investor looses his/her amount, then it is announced 'out of the cash ' or OTM.
So that was the greatest difference between call and put. I hope you understand it now, and will make benefit from it in your binary options trades. Good Luck!
About the Author:
Andrew Reneddy is an expert binary options trader from a quite long time. He is amongst the most expert traders of this niche. You can read up about this one on the official site of First Binary Option - www.firstbinaryoption.com.
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