Options trading is lucrative because you’re presented with a range of choices. It takes a complete understanding of how options work if you want to employ the right decisions. Opportunities pass you by if you hadn’t equipped yourself before they came. Options traders rely on four basic order types. These dictate when a trader buys or sells. You can master this range of choices by practicing them here.
Buying an Open Call
Your buy orders for options must be part of a larger plan that entails an expiration date. A call order tells your broker that you hope to buy an asset at some time in the future. The dates you receive then establish your window of opportunity. With that timeframe, if your position increases in value, you then benefit from the buy-side difference. Realize this, for there are no standard orders in options.
Your entries should all be circumstantial.
Selling an Open Put
This order type works with the same timeframe stipulation but that you can sell within. Since you don’t own the asset when an option is live, you’re not obligated to do anything if your plan doesn’t work. If prices do fall, however, your order will grant you the right to sell as prices are falling. This specific method is to call short trading and requires your broker to open a long position that funds yours.
Closing an Active Buy
Your additional market options come from closing positions. How you do this depends on the performance of the prices you entered. You can quickly stop a losing sell position by buying out of it. Selling an asset is always possible when another entity buys it. Some investors rely on this to bail them out of failing trades.
Closing an Active Sell
A buy option that’s performing well doesn’t have to be let go. You do have to close that buy position if its value lowers. Do it with a sell order. Just know that, though you sell to profit or stop a loss, someone else has first to buy.
Being Flexible in Your Approach
Get familiar with the basic options that financial markets provide. Options contracts have a wide range of flexibility. Knowing that you can sell your buy position—or—buy away your sell order will help you to make accurate decisions. The market conditions do repeat themselves, so get ready to try these orders with a strategy that makes sense.