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Everything you wanted to know about an options contract

On Behalf of | Jul 5, 2022 | Business Law

One of the best ways to increase your net worth is through investing. With that said, there are many ways to invest money in the stock market. Before any North Dakota resident starts investing their money in options, it’s good to know how an options contract works.

Understanding an options contract

Many people invest in the stock market. With that said, buying or selling shares of a company’s stock isn’t the only way to make money investing. Some businesses and individual investors prefer to profit through either buying or selling options contracts.

What are the two types of options contracts?

If you’re feeling bullish or think the value of a stock or index will increase in price, you would want to purchase a call options contract. You’ll want a put options contract if you’re feeling bearish or think the price of a stock or index will decrease in price.

An example of how an options contract works

Let’s say you purchased a call options contract for Company A with a strike price of $165 that expires a month from now. Right now, the share price of Company A trades at $135. If Company A’s stock price goes higher than $165 (and covers your premium per share), you profit on this trade. If the share price of Company A stays below $165, you can let the options contract expire, and you’re only out your premium.

An options contract can be a great way to make money in the stock market. With that said, this isn’t financial advice. If you decide to buy or sell options contracts, you should always do your due diligence and extensively research any stock or index you’re interested in.