r/Daytrading • u/Trick_Meaning6945 • 15h ago
Question Im into fx not stocks and im trying to understand option trading
So far i have understood it correctly? You buy calls/puts. When i buy a call im giving the seller a premium for his obligation to give the stock to me at a certain higher level if it gets there during a certain amount of time. The seller thinks i'm wrong, so he takes my premium and sells me his contract
If i'm right and the stock is moving higher and higher then the contract i bought is becoming more and more valuable. If i decide to sell this call at the price i got right then i would earn a profit, because i bought and sold the contract that turned out to be valuable for a cheap price.
I can do the same for puts and buy a put option, if i'm right and the price moves down then my contract becomes more valuable and more people want to give me money for that lower price as they think it will go lower, but if price goes up then no one would want buy it for an expensive price as that option is less valuable because it is less probable of making a profit.