Options trading is a type of investment that allows investors to buy or sell a security at a specific price within a certain time frame. It offers the potential for higher returns compared to traditional stock trading, but also comes with higher risks. Investors can use different strategies to manage risk and maximize profits, such as buying call options or selling put options.
Call options are financial contracts that give the buyer the right, but not the obligation, to purchase an underlying asset at a predetermined price within a specified time period. Put options, on the other hand, give the buyer the right, but not the obligation, to sell an underlying asset at a specified price within a specific time period. Both options can be used for speculation or hedging against potential losses. However, it's important to note that options trading can be very risky, especially for inexperienced traders, and options contracts have expiration dates, which can lead to losses if the trader doesn't exercise the option in time.
Futures, which obligate the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price, are another type of financial contract commonly used in trading commodities, currencies, and financial instruments. They allow investors to speculate on the future price of an asset and manage risk, but have also been subject to controversy over market manipulation and speculation.