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Many who do not know anything about the stock market are bewildered about the terms that the stock market traders use. Significant occurrences in the news can often cause the market to swing in certain directions but without the know-how, the average investor might not be able to understand how to profit from it. If you want to know more about stock option trading, then it’s important that you spend the time to learn how this type of trading works.

Call options and put options are the two types of options that you can buy and sell on the market. Call options are bought when the investor believes that the stock price will go up. While in the case of put option, buying it gives you the right but not the obligation to sell a stock before the option expires.

When you buy stocks in a company, you own part of the company but when you purchase options, all you’re really doing is buying the rights to purchase a certain amount of shares for a certain price by a certain date. Just like buying and selling stocks, when dealing with options, there is always a buy and a seller. Most people who trade options simply buy put or call options. The people they buy these options from are people who actually own the stock.

Unlike regular stocks, options have expiration dates which adds to its risks but also increases the rewards. This is called the expiration date. Every option will have a month that it will expire on. On that month, you will have until the 3rd Friday to sell or exercise your option before they become useless.

If you are really interested in stock option trading, you should spend a decent amount of time to learn and comprehend the concepts and definition of terms used by the industry. The bigger the rewards, the greater the risks. Stock options trading is one of the riskiest forms of trading and although can be very rewarding, it can also wipe you out relatively quickly.