Part 1 Support and Resistance

How Option Trading Works

Option trading can take place on exchanges such as the Chicago Board Options Exchange (CBOE) or through online trading platforms provided by brokers. Traders can take one of two main positions:

Buying Options – This involves paying the premium to acquire the right to buy or sell the underlying asset. Buying options limits the trader’s loss to the premium paid but offers theoretically unlimited profit for calls if the asset price rises, or significant profit potential for puts if the asset price falls.

Selling/Writing Options – This involves receiving the premium in exchange for assuming the obligation to buy or sell the underlying asset if the buyer exercises the option. Writing options can generate steady income through premiums but carries high risk, especially if the market moves unfavorably.