Trading Options is often referred to stock options is a financial tool for the owners of capital / small retail investors around the world that gives investors the opportunity to get maximum profit with minimum funds.
In Trading Option, there are some choices / options which require analysis and confidence in making decisions.
To take the right decision, then we need to understand the meaning of this Option. As an illustration, I give the following illustration:
For example, no land is sold at 500 million. Then there are buyers who are interested to buy the land, but he only has 50 million cash. Buyers are promised to pay off the remaining 3 months.
After the agreement, the buyer makes a contract and pay 50 million as a sign so or DP (Down Payment) land purchase earlier.
In a letter written contract, if the buyer until the maturity date not managed to pay off the rest of the payment, the land will be taken back by the seller and deposit is not refundable (charred).
Story 1:
1 Month later the land is affected by Lapindo mudflow disaster, so that land prices immediately dropped to the range of 200 million. There are two options / choices that can be land buyers before, namely:
Fixed pay off the land for 500 million, although it is definitely going to lose.
Leaving the land until the time of maturity and will be confiscated land back, so buyers will only have a loss of 50 million.
Well, logically we would certainly choose the second option instead?
Story 2:
1 Month later in the area around the ground was built tourist attractions and shopping centers that cause land prices to increase by 3 times. So, Option buyer can do is:
Immediately seeking a loan of money and had paid the remaining balance of land (450 million) and then sell it at a price 3 times as much or more to others.
Buyers are not looking for a loan, but sell the contract or sign a letter earlier to someone else at a price several times higher than the original (eg, 100 million, 150 million, or 200 million).
From 2 stories above we can take the conclusion that by the Option of trading, the potential loss of our (limited), which represents the price of land advances earlier (50 Million).
But we do not profit (unlimited) as long as land prices continue to rise – again.