Options allow potential gains both during volatile times and when the market is calm or less volatile. This is possible because the prices of assets such as stocks, currencies and commodities are always in motion, and no matter what the market conditions, there is an options strategy that can take advantage of it. Options allow the investor to trade not only with the movements of stocks, but also with the passage of time and the movements of volatility. With advantages like these, you can see how those who have been using options for a while couldn't explain the options' lack of popularity.
In addition, brokers have MOSTLY eliminated commissions, but not the contract fee (especially if you trade futures options, those are EXPENSIVE fees). While synthetic positions are considered an advanced options theme, options offer many other strategic alternatives. If the stock trades below the strike price, the option runs “out of money” and the option expires worthless. Buying OTM call options seems to be a good starting point for new option traders because they are low-cost.
An option has a fixed life, with a specific maturity date, after which its value is settled among investors and the option ceases to exist. The use of options also allows the investor to trade in the third dimension of the market, if not going in the direction. If you plan to buy an option during the earnings season, an alternative is to buy one option and sell another, creating a spread. So I know how the options work, a little bit, because I don't understand how all of you in this sub earn 3000% on some options if you have to pay the contract plus insurance.
If the stock is trading above the strike price, the option is considered to be in the money and will be exercised. When people talk about options or options trading, they generally refer to strategies that involve buying and selling two types of options, call and put. Before buying or selling options, investors should read the Standardized Options Characteristics and Risks booklet (PDF 17.8 MB), also known as the options disclosure document. indice-based trading options can partially protect you from the huge movements that individual news can create for individual stocks.
Options trading is profitable because they offer incredible leverage, so you'll basically earn a lot more, with a lot less.