Part 1 Understanding the Structure of a Candlestick

How Option Trading Works

Option trading involves two parties:

Buyer (Holder): Pays a premium to acquire the right to exercise the option.

Seller (Writer): Receives the premium and is obligated to fulfill the contract if the buyer exercises the option.

Unlike stock trading, where the ownership of shares is exchanged, options trading revolves around rights and obligations. The buyer’s risk is limited to the premium paid, while the seller’s risk can be unlimited (especially in naked option writing).