I have been investing off an on for some yesrs now. I have dabbled in quick searches, and videos to understand options trading. I have not acted on my knowledge yet because I do not think its sufficient yet.
Each contract represents 100 shares. I know that.
I understand that a call option is basically betting the price will rise above a certain number by a certain date. I understand that if it does, I have the right to excercise and purchase at the strike price, which would be lower than market price, and could sell for a profit..Correct?
I understand similar to puts.
However my issue is that I am not fully understanding the risk and what potential strategies can be implemented.
To my understanding, if I write a put option contract.. im essentially saying the share will fall below a specific price by a certain time. If it doesnt, then I am obligated to pay the option buyer the premium, and the contract valued at the strike price or market price?
I was told one of these has unlimited loss potential. That is what I need to understand fully.
If you have any input, or recommendations on where I can get this kind of information dumbed down, I would appreciate it!
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