What is the importance of Option trading ?

Difference between Stock trading & Option trading.

1. The main difference between stock and option is that stock represents the shares held by the person in one or more companies in the market, including the ownership of the person in those companies without the expiration date.

Whereas options are trading instruments representing the investor’s choice for buying or selling an underlying asset based on the option type to be executed before the expiry date.

2. Stock as an investment product is to invest in a company’s share directly by buying that particular company’s stock. Thus it represents part ownership in a corporation and entities. 

The corporation usually issues two types of stocks:-

• Common stock:-The common stock is entitled to its proportionate share of a company’s profit or losses. The stockholder elects the Board of Directors. This board decides whether to retain or send some or all of those profits back to shareholders as dividends.

• Preferred stock:-These stockholders receive a specific dividend at predetermined times. Dividends ordinarily must be paid before the common stock dividends are paid. If the company goes bankrupt the preferred stockholder outranks the common stockholder to recoup their investment potential. 

3. The options trading, a stock option is a privilege/option sold by one party to another. It gives the buyer the right, but not the obligation, to buy or sell a stock(exercise the option) at an agreed-upon price(strike price) within a certain period(expiration date).

The option is mainly two types:-

Call Option:-An option is considered a call when a buyer enters into a contract to purchase a stock at a specific price by a specific date.

Put Option: An option is considered a put when the option buyer takes out a contract to sell a stock at an agreed price on or before a specific date.

Stock trading: – It refers to the buying and selling of shares of a company’s stock. It is a way for individuals and institutions to invest in publicly traded companies and potentially earn profits through changes in the stock price.

To start stock trading, an individual or institution must open a brokerage account with a financial firm that offers stock trading services. This can be done online or in person at a physical branch.

 Once an account is open and funded the individual or institution can start buying or selling stock through the brokerage platform.

There are many different strategies that traders can use when it comes to stock trading. Some traders may focus on buying and holding stocks for the long-term period in the hopes of earning a profit through dividend payments and capital appreciation. Traders can also use a variety of tools and resources to inform their trading decisions. This may include a financial statement, news article, market analysis, and technical charts.

One of the key risks involved in stock trading is the potential for losses. The price of a stock can go down as well as up, and traders may lose money if they sell their stocks for less than they paid for them.

 As such it is important for traders to carefully consider the risks and diversify their portfolio to manage the risk.

Overstock trading can be a rewarding way to invest and potentially earn a profit, but it is important to approach it with caution and to be aware of the potential risk involved.