Stock Options
What are
A **call option** is like a coupon that lets you buy something later at a fixed price. Imagine you have a coupon for a toy that says you can buy it for $10, even if the toy's price goes up to $20. With a call option, if the price goes up, you can use your coupon to buy it for the lower price. This is good if you think the price of something will go up.
A **put option** is like a coupon that lets you sell something later at a fixed price. Imagine you have a coupon that says you can sell a toy for $10, even if the toy's price drops to $5. With a put option, if the price goes down, you can use your coupon to sell it for the higher price. This is good if you think the price of something will go down.
**Spread options** involve using two coupons at the same time, one to buy and one to sell. You might buy one call option and sell another at the same time. This helps you make money if the price moves the way you think it will, but also protects you a little if it doesn’t move as much. It’s like playing it safe while still trying to win.
1. **Up Pattern (Bullish Patterns)**:
- **Head and Shoulders**: Imagine you see a mountain with three peaks, the middle one taller than the others. This pattern often shows that prices will stop going up and might start going down.
- **Double Bottom**: This looks like the letter "W." If prices go down, then up a little, then down again, but not as low as before, and then up again, it often means the price will keep going up.
2. **Down Pattern (Bearish Patterns)**:
- **Head and Shoulders (Again!)**: If you see that mountain shape but upside down, it often shows that prices will stop going down and might start going up.
- **Double Top**: This looks like the letter "M." If prices go up, then down a little, then up again but not as high as before, and then down again, it often means the price will keep going down.