Simulation put option
Options aren't the same as stocks, although there is a link between the equity markets and the options markets. There are two types of options, calls and puts.
An option to buy an asset is a call and an option to sell an asset is a put. One use of options can be to provide insurance against losses. More specifically, put options are a useful tool to add safety to your portfolio.
In our example portfolio, we made the following purchase in high-flying Oil play Exxon Mobile.
If anything should cause Exxon to lose profits, or even grow their profits at a slower rate than expected, this stock could be in for a sharp decline. As responsible investors, we would certainly want to protect ourselves from any significant downside risk, and an XOM put option is a handy tool to do just that.
In our Simulator account, we can access XOM's option's chain by clicking on the "trade options" located by clicking on trading tab; it will appear in subheading space right below the tabs , type in XOM and hitting Get Quotes at Investopedia's quote box.
If you click on the Aug - link at the top of the Calls table or another month of your choosing , you can view all the existing XOM options that have an expiry date of the third Friday of that month. Any option that is in yellow denotes that the option is currently "in the money".
Position Simulator
We want to protect ourselves from a drastic price drop in XOM shares by selling our Exxon shares for a price reasonably close to what we paid for them. The type of option that we need to look for would be put option. If everything looks good in the Preview Order screen, we would hit Submit Trade to confirm the order for the Exxon put option.
In about 20 minutes, the trade will be processed, and the option would appear in the Option Portfolio section of our example Portfolio Summary.
Now, as the coming month goes by, we enjoy the benefit of using the option as a safety net. Note that for simplicity purposes in the simulator, options cannot be exercised eg. What happens is that you get the equivalent amount of cash by selling the options that would cover any loses when you sell the underlying stock position.
The process to sell an option follows the sequence of events as selling a stock click the corresponding sell link on the portfolio summary page etc…. Feel free to dig around the option quotes for some of your stock holdings and purchase a call option contract on a few of your stocks, following the same steps we have outlined above in our Exxon example. Dictionary Term Of The Day.
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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Options Usage By Investopedia Share. Introduction Simulator How-To Guide: The User Interface Tabs Simulator How-To Guide: Purchasing Stocks Simulator How-To Guide: The Portfolio Summary Page Simulator How-To Guide: Ticker Symbol Look Up Simulator How-To Guide: Diversified Portfolio Simulator How-To Guide: Selling Stocks Simulator How-To Guide: Advanced Trade Types Simulator How-To Guide: Short Selling Simulator How-To Guide: Covering Short Positions Simulator How-To Guide: Cancelling Orders Simulator How-To Guide: Margin Accounts Simulator How-To Guide: Buying Options Simulator How-To Guide: Options Usage Simulator How-To Guide: You should then end up with a page similar to the one shown below: Trading options is not easy and should only be done under the guidance of a professional.
Options are valued in a variety of different ways.
Simulator How-To Guide: Buying Options
Learn about how options are priced with this tutorial. A brief overview of how to profit from using put options in your portfolio.
Learn more about stock options, including some basic terminology and the source of profits. A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price.
Futures contracts are available for all sorts of financial products, from equity indexes to precious metals. Trading options based on futures means buying call or put options based on the direction Investment clubs have been around for several decades and are simply groups of people who get together to invest. Overdraft and credit cards will allow you to spend more money than you have, but whichever option you choose, be sure to Quitting your job does not trigger a taxable event for your k funds unless you elect to cash out your account and take Understand the relationship between a worker's earned income and benefits he or she receives from Social Security in retirement, Content Library Articles Terms Videos Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator.
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