| Many investors make options trading seem very | | | | agreed price, sell it at a specific price, or carry out |
| complex and appear as a 'no-go-area' for those who | | | | none of the two. If he decides to do nothing, then |
| do not have experience in trading options. In fact | | | | the option expires. And the buyer loses money. |
| some would even recommend that you forget about | | | | 2. Types Of Options |
| options existence as part of the financial markets | | | | There two types of options: Calls and Puts |
| completely and focus on trading traditional stocks. | | | | Call options give the buyer the right to buy the asset |
| And this they say with good intention and reason. | | | | at an agreed price, within the time frame of the |
| Why? Options trading carry with it a substantial | | | | contract. If you were to buy a Call option, you hope |
| amount of risk - risk of losing money. | | | | that the stock or index price will appreciate |
| However, if truth be told, there is no aspect of the | | | | considerably before the option reaches the date of |
| financial markets or stock trading that does not carry | | | | expiry. |
| with it risks of financial loss. That is why it is always | | | | Put options works in exactly opposite ways to Calls. |
| recommended to trade with risk capital and not your | | | | Put options give the investor the right to sell the |
| rent payment money! | | | | underlying stock within the date of expiry of the |
| Much as there is risk involved, there are also huge | | | | option. As an investor, you were to buy a Put option |
| financial gains to be made if you do understand what | | | | on a stock, you would hope that the price or value |
| you are doing. Jumping into trading options, ignorant | | | | of the underlying stock would fall before the date of |
| of the system works, will lead to frustration and | | | | expiry of the option. |
| failure. | | | | Who Are Involved in Options Trading? |
| This article will introduce you the fundamentals of | | | | There are four participants in an option's trading |
| stock options trading, in its basic terms so that you | | | | (1) Sellers of Puts |
| can build upon it and trade options profitably. It takes | | | | (2) Sellers of Calls |
| months or perhaps even years of consistent practice | | | | (3) Buyers of Puts |
| to get to the point where you can safely say you | | | | (4) Buyers of Calls |
| know how trade options profitably. So do not expect | | | | Buyers of Calls and Puts are under not obligation to |
| to become a master stock options trader after | | | | buy or sell their options. This means that they have |
| reading this article. It should be just a stepping stone | | | | the choice to execute their options, or do nothing at |
| to many other things you need to learn. | | | | all withing the expiry date if they choose. |
| 1. What Is An Option? | | | | On the other hand, Sellers of Calls and Puts are |
| In its simplest terms, an option is a legally binding | | | | obliged to exercise the option they hold on the |
| contract that gives the buyer of the option, the right | | | | underlying stock. Thus they can either buy or sell. |
| to either buy or sell the underlying the instrument, at | | | | Some Terms You Need To Understand |
| a specified price, within a specified time frame. | | | | (1) Strike Price: This is the price an investor has to |
| However, the buyer is under no obligations to carry | | | | pay to purchase or sell the underlying stock. |
| out the buying or selling. In the stock market, the | | | | (2) Expiration Date: This is the date by which the call |
| underlying instrument is either a stock or an index. | | | | or put option on the stock must exercised or the |
| When a buyer acquires an option, there are three | | | | option becomes completely worthless. |
| choices he can exercise: he can buy the option at the | | | | |