You could do two things. It expires in one month.
Put and call options
Usually it will be a specific date, but I'm just saying one month from the date that you buy the option. The type of option that I've just described is called an American option.
And it can be compared to a European option. An American option allows you to exercise the option-- to actually closed options the stock-- any time from the time you have the option until the expiration.
On a European option, you only have the option-- you could only exercise it-- on the expiration. But we'll just focus on the American. Now let's think about the different outcomes depending on what the stock does. So let's say the stock actually does do what you think it does. Let's say it goes up, and then it goes down.
- Updated Jun 22, Four Basic Options Trades While there are many exotic-sounding variations, there are ultimately only four basic ways to trade in the options market.
- Buy to Open vs. Buy to Close Options | Finance - Zacks
- Buy To Close Definition
- Trading Calendar
- In market parlance, it is understood to mean that the trader wants to close out an existing option trade.
Let's say that you're really good at calling stock price tops. And then right over here-- let's take the two scenarios.
Let's take the scenario where you bought the stock, and then you sell closed options stock. So let's just think about the different profit scenarios.
Now let's think about if instead of buying the stock, you bought the option today. So if you bought the option, same thing.
When the stock goes up to here, you'll say, oh, I think that's the top for the stock. Let me exercise my option.
So there it says, hey, look. Maybe I closed options better off buying the stock. And to see that, imagine the negative scenario, where instead of the stock doing that, let's say the stock just completely plummets after you buy it. Now in the situation with the stock-- let's say right over there you just had enough.
You just say, I want to sell the stock. But in the option scenario, this entire time that it was plummeting, you'll say, I just won't exercise the option. The option is out of the money. It makes no sense for me to exercise it.
So you just won't exercise the option. So you'll only lose the price that you paid for the option.