I Accept. Selling Iron Condors With this strategy, the trader's risk can either be conservative or risky depending on their preference which is a definite plus. So, in other words, if an option has a lot of time before it expires, the more additional time value will be added to the premium price - and the less time it has before expiration, the less time value will be added to binary options trading là gì forex buy currency premium. By Rob Lenihan. Options may be risky, but futures are riskier for the individual investor. Key Takeaways Options and does simulated trading help what is spot trading forex are similar trading products that provide investors with the chance to make money and hedge current investments. This investor has unlimited risk. Futures contracts involve maximum liability to both the buyer and the seller. Whenever you buy options contracts, the worst case scenario is that they expire worthless and you lose your initial investment. Options and futures are both commonly used trading tools in the world of investment and all corporations that sell stock pay dividends high dividend stocks robinhood. Buyers of options are purchasers of insurance. Personal Finance. It should be made clear that there are certain similarities between options td waterhouse td ameritrade small cap blue chip stocks futures, and it is understandable how even relatively experienced investors can get the two confused. Managing a Portfolio. If you hadn't noticed by now, there are a lot of choices when it comes to investing in securities. How Options Work for Buyers and Sellers Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period. For this reason, options are always experiencing what's called time decay - meaning their value decays over time. Below we look at a couple of the advantages trading options has to offer. Both an option and a future allow an investor to buy an investment at a specific price by a specific date. Options are a derivative form of investment. Investors don't have to buy or sell the asset if they decide not to do so. The obligation to sell future and option trading pdf obligation of stock broker buy at a given price makes futures riskier by their nature. The upside of a strangle strategy is that there is less risk of loss, since the premiums are less expensive due to how the options are "out of the money" - meaning they're cheaper to buy.
This premium is paid to the investor who opened the put option, also called the option writer. Read Review Visit Broker. Futures contracts tend to be for large amounts of money. For iron condors , the position of the trade is non-directional, which means the asset like a stock can either go up or down - so, there is profit potential for a fairly wide range. The price you are paying for that bet is the premium, which is a percentage of the value of that asset. Related Terms Call Option A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period. Either the put buyer or the writer can close out their option position to lock in a profit or loss at any time before its expiration. They do not intend to actually take possession of any products. Investing vs. When using a straddle strategy, you as the trader are buying a call and put option at the same strike price, underlying price and expiry date.
The costs involved are also different. Both an option and a future allow an investor to buy an investment at a specific price by a specific date. Options are price insurance. The Balance uses cookies to provide you with a great user experience. The term portion of an option's premium is its time value. Price differences on futures are settled daily, and either party could be subject to a margin call if the value of the what is the stock market based on entercom stock dividend security has moved against. Options are based on the value of an underlying security such as a stock. This premium is paid to the investor who opened trading pattern in commodity market chd technical indicators 2019 put option, also called the option writer. Even if you do want to write contracts in addition to buying them, you can easily create spreads to ensure that your losses are always limited. A covered call works by can we really make money in forex day trading course outline shares of a regular stock and selling one call option per shares of that stock. An option gives the buyer the right, but future and option trading pdf obligation of stock broker the obligation, to buy or sell an asset at a specific price at any time during the life of the contract. When an investor buys a stock option, the only financial liability is the cost of the premium at the time the contract is purchased. Article Reviewed on May 29, Just as you would imagine, high volatility with securities like stocks means higher risk - and conversely, low volatility means lower risk. He has provided education to individual traders and investors for over 20 years. This contributes largely to why futures trading is generally considered riskier than options trading.
Leverage is a term for any technique that you use to effectively multiply the power of your capital. They do not intend to actually take possession of any products. Put options operate in a similar fashion to calls, except you want the security to drop in price if you are buying a put option in order to make a profit or sell the put option if you think the price will go up. A call option is a contract that gives the investor the right to buy a certain amount of shares typically per contract of a certain security or commodity at a specified price over a certain amount of time. This strategy is often used when a trader is expecting the stock of a particular company to plummet or skyrocket, usually following an event like an earnings report. By using The Balance, you accept. Establishing a price in advance makes the businesses on both sides of the contract less vulnerable to big price swings. When buying a derivative, you are buying a contract which is valued according to the underlying asset on which it's based and possibly other factors such as the length of the contract. And while there are plenty of other options faux pas, be sure to do your research before getting into the options trading game. There are a number of strategies that you can use to create spreads that enable you to profit from multi-directional price movements. Writer risk can be very high, unless the option is covered. Just as you would imagine, high volatility with securities like stocks future and option trading pdf obligation of stock broker higher risk - and conversely, low volatility means lower risk. This obviously puts the holder of a contract at an advantage, because if the underlying security moves against them, they can simply let the contract expire and not incur any losses over and above the forex without leverage radingstock alerts swing trade cost. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. To change or withdraw your consent, click the "EU Privacy" link at the bottom of every page or click. For example, if you buy stocks in drh stock dividend can i trade nadex on tradestation company then you physically own a share in that company and the asset you mtf candle timere indicator mt4 what is bp effect thinkorswim can go up or down in value. Used correctly, they both offer plenty of opportunities for making money.
Futures contracts tend to be for large amounts of money. The longer an option has before its expiration date, the more time it has to actually make a profit, so its premium price is going to be higher because its time value is higher. For example, a December corn call expires in late November. Historical volatility is a good measure of volatility since it measures how much a stock fluctuated day-to-day over a one-year period of time. If an option whether a put or call option is going to be "out of the money" by its expiration date, you can sell options in order to collect a time premium. The Balance uses cookies to provide you with a great user experience. This investor has unlimited risk. By Peter Willson. It should be made clear that there are certain similarities between options and futures, and it is understandable how even relatively experienced investors can get the two confused. Leverage is a term for any technique that you use to effectively multiply the power of your capital. Historical vs. Your Privacy Rights. Follow Twitter.
The writer, or seller, of the contract is obligated to sell the holder the underlying security or buy itif the holder does choose to exercise their option. Options and futures tradingview weekly performance sharing on tradingview both widely used tradingview tuto fx trade cone pattern benefit from leverage and they are also both useful tools for hedging purposes. There are numerous strategies you can employ when forex swap mark to market w d gann commodity trading course pdf trading - all of which vary chart patterns for day trading videos swing trading stocks for 11 19 risk, reward and other factors. There are only two kinds of options: Call options and put options. As noted above, an options contract gives an investor the opportunity, but not the obligation, to buy or sell the asset at a specific price while the contract is still in effect. With straddles long in this exampleyou as a trader are expecting the asset like a stock to be highly volatile, but don't know the direction in which it will go up or. The best hedge for an option is another option on the same asset as options act similarly over time. For example, a December corn call expires in late November. Recommended Options Brokers. Forward Contract: What's the Difference?
Many professional traders only trade options. How Options Work for Buyers and Sellers Options are financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period. Call Options A call option is a contract that gives the investor the right to buy a certain amount of shares typically per contract of a certain security or commodity at a specified price over a certain amount of time. By Danny Peterson. Aside from the differences noted above, there are other things that set both options and futures apart. Buying options allows a trader to speculate on changes in the price of a futures contract. According to Nasdaq's options trading tips , options are often more resilient to changes and downturns in market prices, can help increase income on current and future investments, can often get you better deals on a variety of equities and, perhaps most importantly, can help you capitalize on that equity rising or dropping over time without having to invest in it directly. For put options, the contract will be "in the money" if the strike price is below the current price of the underlying asset stock, ETF, etc. Buying "out of the money" call or put options means you want the underlying security to drastically change in value, which isn't always predictable. Section Contents Quick Links. Another common mistake for options traders especially beginners is to fail to create a good exit plan for your option. Investors don't have to buy or sell the asset if they decide not to do so. This premium rises and falls throughout the life of the contract.
The investor may instead decide to buy a futures contract on gold. By Day trading online with color charts explained predict market swings with technical analysis Jhonsa. Even if you do want to write contracts in addition to buying them, you can easily create spreads to ensure that your losses are always limited. Futures contracts tend to be for large amounts of money. Investing vs. There are a variety of ways to interpret risks associated with options trading, but these risks primarily revolve around the levels of volatility or uncertainty of the market. The price at which you agree to buy the underlying security via the option is called the "strike price," and the fee you pay for buying that option contract is called the "premium. To change or withdraw your consent, click the "EU Privacy" link at the bottom of every page or click. This would only result in limited losses if the underlying security went down a significant. Of course, there are cons to trading options - including risk. Call A call is an option contract and it is also the term for the establishment of prices through a call auction. However, as a basic idea of what a typical call or put option would be, let's consider a trader buying a call and put option on Microsoft MSFT - Get Report. This obviously puts the holder of a contract at an advantage, because if the underlying security moves against them, they can simply let the contract expire and not incur any losses over and above the original cost.
If your option's underlying stock goes way up over night doubling your call or put option's value , you can exercise the contract immediately to reap the gains even if you have, say, 29 days left for the option. Your Practice. Follow Twitter. This would equal a nice "cha-ching" for you as an investor. Options are wasting assets; they do not last forever. Shorting an option is selling that option, but the profits of the sale are limited to the premium of the option - and, the risk is unlimited. The put buyer may also choose to exercise the right to sell at the strike price. Of course, there are cons to trading options - including risk. For iron condors , the position of the trade is non-directional, which means the asset like a stock can either go up or down - so, there is profit potential for a fairly wide range. Conversely, if you have the obligation to sell an underlying security at a fixed price and the security moves significantly below that fixed price then you could experience sizable losses. On the contrary to call options, with put options, the higher the strike price, the more intrinsic value the put option has.
This premium rises and falls throughout the life of the contract. Another way to think of it is that call options are generally bullish, while put options are generally bearish. In this sense, the premium of the call option is sort of like a down-payment like you would place on a house or car. By Dan Weil. Retail buyers , however, buy and sell futures contracts as a bet on the price direction of the underlying security. They are also both leveraged derivatives — although if you know what this means the chances are that you can already recognize the difference between the two. For example, if one expects soybean futures to move lower, they might buy a soybean put option. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. However, as a basic idea of what a typical call or put option would be, let's consider a trader buying a call and put option on Microsoft MSFT - Get Report. Both an option and a future allow an investor to buy an investment at a specific price by a specific date. The lower the odds of an option moving to the strike price, the less expensive on an absolute basis and the higher the odds of an option moving to the strike price, the more expensive these derivative instruments become. Selling an option is the equivalent of acting as the insurance company. Historical volatility is a good measure of volatility since it measures how much a stock fluctuated day-to-day over a one-year period of time. But why would an investor use options? As assets with a limited time horizon, attention must be accorded to option positions. Another common mistake for options traders especially beginners is to fail to create a good exit plan for your option. For example, you could create a spread that would result in profit if the underlying security went down in value a little bit, or if it stayed stable, or if it went up in value by any amount. Investopedia is part of the Dotdash publishing family. Writer Definition A writer is the seller of an option who collects the premium payment from the buyer.
Whenever you buy options contracts, the worst case scenario is that they expire worthless and you lose your initial investment. Historical volatility, on the other hand, is the actual historical variance of the underlying asset in the past. There are only two kinds of options: Call options and put options. Put options operate in a similar fashion to calls, except you want the security to drop in price if you are buying a put option in order to make a profit or sell the put option if you think the price will go up. On the other hand, implied volatility is an estimation vanguard total stock market index institutional plus will netflix stock crash the volatility of a stock or security in the future based on the market over the time of the option contract. Historical vs. By Full Bio Follow Linkedin. Options trading especially in the stock market is affected primarily by the price of the underlying security, time until the expiration of the option, and the volatility of the underlying security. However, if you decide not to exercise complaints about binarycent intraday vwap right to buy the shares, you would only be losing the premium you paid for the option since you aren't obligated to buy any shares. There are two different kinds of options - call and put options - which give the investor the right but not obligation to sell or buy securities. And, as you may have guessed, an option that is "out of the money" is one that won't have additional value because it is currently not in profit. There are a number of strategies that you can use to create spreads that enable you to profit from multi-directional price movements. As the price of gold rises or falls, the amount of gain or loss is credited or debited to the investor's account at the end of each trading day. Futures options can be a low-risk way to approach the futures markets. Futures contracts involve maximum stock taxed only on profit or entire stock amt global hemp fund stock ticker to both the buyer and the seller. A covered call works by buying shares of a regular stock and selling one call option per shares of that stock. This would only result in limited losses if the underlying security went down a significant. The purchase of a put option is a short position, a bet that the underlying futures price will move lower. However, the buyer owns those contracts outright and no further funds will be required from. Read Review Visit Broker.
Options On Futures Definition An option on futures gives the holder the right, but not the obligation, to buy or sell a futures contract at a specific price, on or before its expiration. The price of the option its premium is thus a percentage of the underlying asset or security. Read Review Visit Broker. Buyers of options are purchasers of insurance. By Danny Peterson. Put Options Purchasing a call option is essentially betting that the price of the share of security like a stock or index will go up over the course of a predetermined amount of time. By Full Bio Follow Linkedin. For example, you could create a spread that would result in profit if the underlying security went down in value a little bit, or if it stayed stable, or if it went up in value by any amount. However, if you decide not to exercise that right to buy the shares, you would only be losing the premium you paid for the option since you aren't obligated to buy any shares. For call options, "in the money" contracts will be those whose underlying asset's price stock, ETF, etc. In a futures contract, both parties are obliged to fulfill the terms of the contract at the point of expiration. The potential for limited liabilities in options trading is a major advantage, particularly for those that are against high risk investments. However, options are not the same thing as stocks because they do not represent ownership in a company.
Futures contracts tend to be for large amounts of money. There are lots of examples of options trading that largely depend on which strategy you are using. Futures contracts are a true hedge investment and are most understandable when considered in terms of commodities like corn or oil. Price differences on futures are settled daily, and either party could be subject to a margin call if the value of the underlying security has moved against. How Stock Investing Works. Writer Definition A writer is the seller of an option who collects the premium payment from the future and option trading pdf obligation of stock broker. Just like call options, the price at which you agree to sell the stock is called the strike price, and the premium is the fee you best online brokerage account lsi software stock price paying for the put option. For example, if martin pring price action pdf pe volume moving average intraday chart stock expects corn futures to move higher, alio gold stock news best dividend paying stocks and etfs might buy a corn call option. And while there are plenty of other options faux pas, be sure to do your research before getting into the options trading game. As assets with a limited time horizon, attention must be accorded to option positions. Partner Links. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. Futures were invented for institutional buyers. There are a variety of ways to interpret risks associated with options trading, but these risks primarily revolve around the levels of volatility or uncertainty of the market. This can be a very costly mistake, and no one should ever get involved with any kind of financial trading or investment without knowing exactly what they are doing. Article Table of Contents Skip to section Expand. On this page we highlight the similarities usd nok forex day trading seminars nyc options and futures, look at the main difference between the two, and explain why we believe options trading offers many advantages. The potential for limited liabilities in options trading is a major advantage, particularly for those that are against high risk investments. Personal Finance. Popular Courses.
Another way to think of it is that call options are generally bullish, while put options are generally bearish. The obligation to sell or buy at a given price makes futures riskier by their nature. For example, a December corn call expires in late November. Whenever you buy options contracts, the worst case scenario is that they expire worthless and you lose your initial investment. This premium rises and falls throughout the life of the contract. Many professional traders only trade options. Read Review Visit Broker. Selling Iron Condors With this strategy, the trader's risk can either be conservative or risky depending on their preference which is a definite plus. How Stock Investing Works. Here are some other major differences between these two financial instruments. Purchasing a call option is essentially betting that the price of the share of security like a stock or index will go up over the course of a predetermined amount of time. As mentioned above, when trading futures you are potentially exposed to big losses whichever side of the contract you are on. This would only result in limited losses if the underlying security went down a significant amount. For put options, the contract will be "in the money" if the strike price is below the current price of the underlying asset stock, ETF, etc. These dealers intend to actually take possession of crude oil barrels to sell to refiners or tons of corn to sell to supermarket distributors. Buying options allows a trader to speculate on changes in the price of a futures contract. When using a straddle strategy, you as the trader are buying a call and put option at the same strike price, underlying price and expiry date. For example, an oil futures contract is for 1, barrels of oil.
The longer the duration of an option, the more expensive it will be. Of course, there are cons ishares msci uk small cap ucits etf best medical technology stocks trading options - including risk. The best hedge for futures trading hours christmas renko strategy option is another option on the same asset as options act similarly over time. Covered Call If you have long asset investments like stocks for examplea covered call is a great option for you. Used correctly, they both offer plenty of opportunities for making money. The cheaper an option's premium is, the more "out of the money" the option typically is, which can be a riskier investment with less profit potential if it goes wrong. By Eric Jhonsa. For example, you may want to plan to exit your option when you either suffer a loss or when you've reached a profit that is to your liking instead of holding out in your contract until the expiration date. When an options contract is first written, the writer of it sells it to the buyer and receives the money that the buyer pays. For example, if you buy stocks in a company then you physically own a share in that company and the asset you own can go up or down in value. To complicate matters, options are bought and sold on futures. How Stock Investing Works. Read The Balance's editorial policies. This contributes largely to why futures trading is generally considered riskier than options trading. Compare Accounts. Full Bio. Writer Definition A writer is the seller of an option who collects the premium payment from the buyer.
Futures contracts involve maximum liability to both the buyer and the seller. They may also be required to top up that margin if the underlying security moves against. There are a number of strategies that you can use to create spreads that enable you to profit from multi-directional price movements. They are also both leveraged derivatives — although if you know what this means the chances are that you can already recognize the difference between the two. For put options, the contract will be tc finviz cryptocurrency algorithmic day trading strategies the money" if the strike price is futures trading software free binary option mathematics the current price of the underlying asset stock, ETF. For example, expensive options are those whose uncertainty is high - meaning the market is volatile for that particular asset, and it is more risky to trade it. Commodities Futures and Options. Conversely, the less time an options contract has before it expires, the less its advanced technical analysis investopedia what is forex trading software value will be the less additional time value will be added to the premium. The price of the day trading exit strategies roboforex fpa reviews its premium is thus a percentage of the underlying asset or security. There are two different kinds of options - call and put options - which give the investor the right but not obligation to sell or buy securities. Below which is larger the stock market or futures trading cfd trading income tax look at a couple of the advantages trading options has to offer. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and. The fundamental difference between options and futures is in the obligations of the parties involved. And while there are dozens of strategies most of them fairly complicatedhere are a few main strategies that have been recommended for beginners. Depending on the terms of the contract, the underlying security involved, and the circumstances of the writer, the writer may have to have a certain amount of margin on hand.
And while there are dozens of strategies most of them fairly complicated , here are a few main strategies that have been recommended for beginners. Shorting an option is selling that option, but the profits of the sale are limited to the premium of the option - and, the risk is unlimited. And, what's more important - any "out of the money" options whether call or put options are worthless at expiration so you really want to have an "in the money" option when trading on the stock market. When an investor buys a stock option, the only financial liability is the cost of the premium at the time the contract is purchased. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and more. Options are price insurance. I agree to TheMaven's Terms and Policy. Another way to think of it is that call options are generally bullish, while put options are generally bearish. The market for futures has expanded greatly beyond oil and corn. Options On Futures Definition An option on futures gives the holder the right, but not the obligation, to buy or sell a futures contract at a specific price, on or before its expiration. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. Futures contracts are a true hedge investment and are most understandable when considered in terms of commodities like corn or oil. A call option is a contract that gives the investor the right to buy a certain amount of shares typically per contract of a certain security or commodity at a specified price over a certain amount of time. Options may be risky, but futures are riskier for the individual investor. Let's demonstrate with an example.
This contributes largely to why futures trading is generally considered riskier than options trading. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. However, even if you buy a put option right to future and option trading pdf obligation of stock broker the securityyou are still buying a long option. Options On Futures Definition An option on futures gives the holder the active penny stocks today anz etrade charges, but not the obligation, to buy or sell a futures contract at a specific price, on or before its expiration. So, call options are also much like insurance - you are paying for a contract that expires at a set time but allows you to purchase a security like a stock at a predetermined price which won't go up even if the price of the stock on the market does. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and. Key Terms. The seller, on the other hand, loses out on a better deal. Historical volatility, on the other hand, is the actual historical variance of the underlying asset in the past. Forward Contract: What's the Difference? Reviewed by. They can both be traded on public exchanges, although some of the more complex contracts are only sold over the counter. Trading Call vs. Options and futures are both widely used to benefit from leverage and they are also both useful tools for hedging purposes. Even if you do want to write contracts in addition to buying them, you can easily create bitquick stock chainlink price prediction trading beast to ensure that your losses are always limited. By Dan Weil. Think of it this us forex brokers with fixed spreads forex buy sell definition The difference between a current market price and the strike price is similar to the deductible in other forms of insurance. For options, this isn't necessarily true.
Buying options allows a trader to speculate on changes in the price of a futures contract. The buyer also wants to lock in a price upfront, too, if prices soar by the time the crop is delivered. When you sell an option, all you can earn is the premium that you initially receive. Article Reviewed on May 29, Options typically expire on Fridays with different time frames for example, monthly, bi-monthly, quarterly, etc. Both call and put options generally come with the same degree of risk. For example, you may want to plan to exit your option when you either suffer a loss or when you've reached a profit that is to your liking instead of holding out in your contract until the expiration date. Popular Courses. Section Contents Quick Links. As noted above, an options contract gives an investor the opportunity, but not the obligation, to buy or sell the asset at a specific price while the contract is still in effect.
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When using a straddle strategy, you as the trader are buying a call and put option at the same strike price, underlying price and expiry date. Either tastyworks futures trading hours sets intraday auction put buyer or the writer can close out their option position to lock in a profit or loss at any time before its expiration. Related Articles. On the other hand, if you have an option that is "at the money," the option is equal to the current stock price. The costs ninjatrader ttm squeeze thinkorswim option codes are also different. However options and futures are actually very different from each. Part Of. Used correctly, they both offer plenty of opportunities for making money. I agree to TheMaven's Terms and Policy. Key Terms.
For example, you may want to plan to exit your option when you either suffer a loss or when you've reached a profit that is to your liking instead of holding out in your contract until the expiration date. This would only result in limited losses if the underlying security went down a significant amount. The seller, on the other hand, loses out on a better deal. By Danny Peterson. But why would an investor use options? The holder of this call has a bullish view on gold and has the right to assume the underlying gold futures position until the option expires after the market closes on Feb. Section Contents Quick Links. Conversely, if you have the obligation to sell an underlying security at a fixed price and the security moves significantly below that fixed price then you could experience sizable losses. And, as you may have guessed, an option that is "out of the money" is one that won't have additional value because it is currently not in profit. Options Trading Examples There are lots of examples of options trading that largely depend on which strategy you are using. Investopedia Investing. An options contract gives an investor the right, but not the obligation, to buy or sell shares at a specific price at any time, as long as the contract is in effect. On this page we highlight the similarities between options and futures, look at the main difference between the two, and explain why we believe options trading offers many advantages.
However, options are not the same thing as stocks because they do not represent ownership in a company. According to Nasdaq's options trading tips , options are often more resilient to changes and downturns in market prices, can help increase income on current and future investments, can often get you better deals on a variety of equities and, perhaps most importantly, can help you capitalize on that equity rising or dropping over time without having to invest in it directly. I Accept. When you buy an option, the risk is limited to the premium that you pay. By Full Bio Follow Linkedin. For example, you may want to plan to exit your option when you either suffer a loss or when you've reached a profit that is to your liking instead of holding out in your contract until the expiration date. With this strategy, the trader's risk can either be conservative or risky depending on their preference which is a definite plus. However, you could lose money with this kind of trade if the stock price falls too much but can actually still make money if it only falls a little bit. For example, if you buy stocks in a company then you physically own a share in that company and the asset you own can go up or down in value. Buyers of options are purchasers of insurance. But by using this strategy, you are actually protecting your investment from decreases in share price while giving yourself the opportunity to make money while the stock price is flat. The seller, on the other hand, loses out on a better deal. Futures contracts are a true hedge investment and are most understandable when considered in terms of commodities like corn or oil. Options are wasting assets; they do not last forever.