What is an option?
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An option is a contract that gives you the right, but not the obligation, to buy or sell an underlying asset for a fixed price by a specified date. Essentially, buying an option gives you ownership over 100 shares of stock for a short period of time. There are two types of options: calls and puts. Calls give you the right to buy an asset, while puts give you the right to sell an asset.
When the underlying asset goes up in price, a call tends to do the same. A put, on the other hand, will go up in price as the underlying asset falls.
Typically, calls are bullish, and puts are bearish. Which one you use depends on your outlook on a stock.
Options are a great way to take advantage of market volatility – and turn it into fast cash. And by purchasing cheap options on large-cap stocks, we’re able to make asymmetrical gains.
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