You may be wondering what an option is and how options work. An option is a contract that gives the buyer the right, but not the obligation, to buy or sell a specific amount of a stock at a predetermined price (the "strike price") within a certain period of time. Once that time period has passed, the option contract is considered expired.
There are two main types of stock options:
- Call options: Buying a call option gives the buyer the right to buy the stock at the strike price within the specified time frame.
- Put options: Buying a put option gives the buyer the right to sell the stock at the strike price within the specified time frame.
Instead of first buying an option position like in the example above, investors can also open an option position by first selling the option, which would create a short option position in your account. Short option sellers may be assigned at any time they are short the option. The option would generally have to be in the money for this to happen. However, if they are assigned, that means the seller is obligated to buy (sell a put) or sell (sell a call) a specific amount of stock at the strike price by a certain point in time (“option expiration”).
For further details on option trading at Alpaca, please navigate to our documentation.
For further educational information on Options trading, please refer to: https://www.optionseducation.org/
Options trading is not suitable for all investors due to its inherent high risk, which can potentially result in significant losses. Please read Characteristics and Risks of Standardized Options before investing in options.
All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is no guarantee that any investment strategy will achieve its objectives. Please note that diversification does not assure a profit, or protect against loss. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.