Options are confusing to most people. They believe that this is gambling on stocks. It is the buying of contracts to buy or sell a set amount of stocks at an agreed to price. The contracts themselves can be sold or bought like the stocks, but the person will never actually own any part of the company. The only way the person can own a part in the company is if they buy the stocks via the contract, which then gets rid of it. The contracts also have an expiration date. It is planning and knowledge that will see a person succeed.
A call option is a contract that has the person buying it saying they will be able to buy a certain amount of stocks at a set price. The call option is for those who believe the price of a stock will go up. If the price goes above the selling price in the contract, they can buy the stocks and then make a profit. If the price never goes to the specified contract price, they do not have to buy the stocks. Holders of these stock options are looking for a company to do better, so that they do better.
A put option is a contract where the person is to sell stocks if the price goes below a certain level. This allows the person to sell the stock higher than the current price, which means they still make a profit. This type of option is where the person believes that something will drive the price down. This happens after the date for the dividend has passed, bad news with the company, or bad news for the industry. This could be true for an ETF, or other security, that an option can be set up for.
algorithmic options trading has entered the scene in a big way. This type of trading utilizes computers and programs into the process of deciding to buy a put or a call contract. The computer sifts through all the available information and will determine if the price is set to rise or fall. That means that the computer will need to have been programmed with the right algorithms to predict with any accuracy what will occur. The person using the program will have to test the ability, but people are using this process to streamline their patterns more and more.
Options trading is not as much of as a mystery as people believe. The main problem is being able to predict what will happen with any accuracy. That is where computers come in for many modern traders. They see the opportunities of information sifting as a chance to find better computer programs to do this. They may even set up a project to do this themselves. It is through the mountains of information that people are looking for a profit to be made from buying or selling the contracts or the securities attached to the contract.