Stock option trading can be viewed as among the most financially rewarding strategies you can get involved in. Sometimes, this becomes a destructive investment plan, though. Stock option may be the ‘right’ to get a stock at confirmed price inside a specified time. Stock option trading is basically influenced by certain factors, such as for example name of the associated stock, strike price, expiration date, and the premium covered the option, in addition to the stock broker’s commission.
Stock option trading involves trading standardized options contracts, which are listed by a number of futures and options exchanges. In the usa, you can find presently six exchanges where commodity are traded, including four open-outcry marketplaces and two electronic marketplaces. The open-outcry marketplaces are Philadelphia STOCK MARKET (PHLX), American STOCK MARKET (AMEX) in NEW YORK, the Pacific Exchange (PCX) in SAN FRANCISCO BAY AREA, and the Chicago Board Options Exchange (CBOE). The International Securities Exchange (ISE) and Boston Options Exchange (BOX) are contained in the electronic marketplaces. In Europe, the primary futures and options exchanges are Euronext.liffe and Eurex.
Another substitute for trade a stock may be the ‘over-the-counter’ (OTC) trading, that is the contrary of exchange trading occurring in option exchanges or futures exchanges. The OTCs are traded not in exchanges, but between two independent groups; hence these transfers will be the bi-lateral contracts. In this contract, a minumum of one group is normally a big financial organization with a balance sheet big enough to ensure this type of contract. OTCs are administrated by a global Swaps and Derivatives Association agreement.
Stock option trading, without intent to ever exercise the choice, may be regarded as a kind of ‘leverage’. The ‘grant’ price (the cost of a choice) on a security might increase on the price of the security itself. Because of this, the complete value of trading in options has sometimes exceeded the full total value of trading in stocks themselves.