How To Make Money With Stock Options

Through the use of the option, both the seller and the buyer made their business transactions more conservative.

It is this ability to create protection and to collect a premium that permits options to be utilized by the conservative investor to create conservative investment strategies.

B. The Hard Part Is The Vocabulary

Because options deal with (1) the underlying security, (2) a strike price, (3) a premium, and (4) a limited time, and because they are often traded in groups (combinations) that are described with special names, the vocabulary of options becomes important. So we start there.

ALWAYS REMEMBER, HOWEVER, THAT THE OPTION IS A BUNDLE OF RIGHTS IN AND OF ITSELF - NOT AN APPENDAGE TO THE UNDERLYING STOCK. THINK OF AN OPTION AS IF IT WERE REPRESENTED BY ITS OWN “CERTIFICATE” WHICH FLUCTUATES IN PRICE LIKE STOCK CERTIFICATES DO.

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