Choices are generally often called “derivatives” as a result of the Choices market is a market which is “derived” from one other market. Probably the most generally identified choices are derivatives of the share market, however you may as well have choices on commodity futures resembling gold, silver, sugar, wheat or pork bellies, or on different monetary devices resembling currencies. The market relies purely on provide and demand, which suggests the costs rise and fall in line with market sentiment. Whether or not we’re speaking about shares, commodities or currencies, these upward or downward developments may be tracked on charts. It’s a true saying that “an image paints a thousand phrases” and in the identical means, charts can provide us a visible illustration of the actions in worth, in a means that no quantity of tabulated knowledge can. Charts are our greatest pal if we need to study choice buying and selling as a result of they assist us to resolve when to purchase or promote, or what technique to make use of investindo em opcoes.
What’s an Possibility?
Earlier than we will study choice buying and selling, we first want to grasp what an Possibility is. An choice is a contract between two events to trade an asset for an agreed worth, by an agreed time. When you purchase an choice, you might be outlaying a a lot smaller sum than you’d for the total buy worth of the asset the choice covers. You will have heard of somebody having an choice to purchase land. On this case, you’d pay a couple of thousand to provide the proper to buy one thing value many hundreds of for an agreed quantity, inside a given time-frame. So you will have paid for a proper, however not an obligation. You possibly can train that proper if you want, or you possibly can let it lapse, or expire. The identical precept applies to choices on shares. If you purchase a CALL choice, it provides you the suitable to “name” on the proprietor of the shares, to promote them to you on the agreed “strike worth” by an agreed date.
Let’s take a look at an instance. When you bought a $30 October ABC Financial institution (fictitious identify) name choice, you now have the suitable (however not the duty) to buy ABC Financial institution shares for $30 up till the contract expiry date in October. Now, think about that earlier than the choice expiry date, the each day market worth of ABC Financial institution shares rose to $32. This might successfully imply that you just now have the suitable to buy one thing for $30 after which instantly flip round and promote it on the open marketplace for $32. When you had bought contracts for 1,000 shares, you will have an instantaneous revenue of $2,000 on the time the choice expires. It should not be troublesome to see then, that the upper the share’s market worth goes earlier than the expiry date, the extra helpful your name choice will grow to be. So long as the market worth is above the choice strike worth, the decision choice contract is claimed to be “within the cash”. To study choice buying and selling, it’s crucial you perceive this straightforward idea.
However, you would possibly assume the worth of a share goes to fall. Chances are you’ll need to guarantee that you could nonetheless promote your shares for at the least what you paid for them, or barely under. So you are taking out a type of insurance coverage referred to as a “put” choice. A put choice provides you the suitable, however not the duty, to promote (or put) your shares to another person, for an agreed quantity, by a given date. Let’s take our ABC Financial institution instance above and picture that you just owned 1,000 shares that you just bought for $30 however earlier than our October expiry date, the share worth plummeted to solely $26. Usually, you’d have misplaced a cool $four,000 (1,000 shares x $four loss in share worth), however for those who had additionally bought $30 October put choices, you will have the suitable to promote (put) the shares for $30 to the market. For a small price, you will have prevented a $four,000 capital loss – so you’d really feel such as you’ve taken out “share insurance coverage” which is what a put choice actually is. So once more, it turns into evident that as the worth of a share drops, so a put choice turns into extra helpful. So long as the market worth is under the choice strike worth, the put choice contract is claimed to be “within the cash”.