What is option trading, How is option trading applicable

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Accepted Answer

Option trading is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specific time period.

Option trading involves buying and selling options contracts based on the future price of the underlying asset.
There are two types of options: call options (which give the buyer the right to buy the asset) and put options (which give the buyer the right to sell the asset).
Option trading can be used for speculation, hedging, or generating income through premium collection.
Example: A trader buys a call option on Company XYZ stock with a strike price of $100. If the stock price rises above $100 before the option expires, the trader can exercise the option to buy the stock at $100.
Example: A farmer buys a put option on corn futures to hedge against a potential price drop in the future.
Option trading requires understanding of factors like strike price, expiration date, and volatility of the underlying asset.

What is option trading, How is option trading applicable

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