1.    Options give the investor the right to buy or sell the underlying asset or instrument.

2.    If you buy options, you are not obliged to buy or sell the underlying asset, you just have the right. Meaning, you can choose to buy the options, sell the options or do nothing and let it expire, depending on what is most advantageous to your position.

3.    Options are either call or put. Call options give the power to the buyer to buy the options. Put options give the buyer the right to sell the options.

4.    Options are quoted per share, but are sold in 100 share lots. Meaning, if the investor purchases 1 option, he or she is buying 100 shares.

5.    The investor only has to pay the option premium and not the total amount of shares like if you are buying per stock. For example, if the option premium of a $50 stock is $3, the total amount of the contract is $300 per option. So if the investor is buying 3 options at $3 per option, since he or she is buying in 100 share lots, the total payment would be $900 (3 options x 100 shares per option x $3 option premium).

6.    Buying shares is different. You have to pay per share. For example, the stock price of Company A is $80. If you want to buy 100 shares, you would have to pay $8,000. Whereas with options, if you wish to invest on 100 shares, you just have to enter into a contract wherein you would buy one option at a certain option premium.

7.    If you wish to buy the stock at the end of the contract, that will be the only time where you will pay the total amount of money that is equivalent to the number of option contracts, multiplied by contract multiplier. Refer to #6 for example.

8.    If the buyer exercises his rights to buy the option (call), the seller (or the writer) is obliged to deliver the underlying asset.

9.    If the buyer exercises his rights to sell the option (put), the seller is obliged to purchase the underlying asset.

10.    If the buyer wishes to exercise his rights to either buy or sell the underlying asset, the seller must either sell it or buy it at the strike price, regardless of the its current price.

11.    In case the buyer of the option decides to do nothing at the end of the contract for whatever reason, the seller keeps the option premium as profit.

12.    In computing your profit, you have to consider 2 things: the option premium and the strike price. If the option premium is $2 and the strike price is $50, your break-even point is at $52. So in order for you to make a profit, the stock must be more than $52. If the stock falls below $52, say $49, and there is no time left, you won’t lose $3 per stock. What you will lose, however, is the option premium you have paid for the contract.

Note: The numbers were just picked out of the air to illustrate how options trading work. In real world, numbers vary widely so you have to carefully study each of them.

Technorati Tags: Option Trading, Option Trading Basic, Option Trading Review

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For individuals who are after running their own enterprise and saying goodbye to their regular job, putting up a business online is one option. Sure enough, you have already heard about options trading. It is one of the hottest endeavors today since such venture promises better rewards to the investors. What must you know about it then? How can you turn yourself into a successful trader? What are the rules, strategies, and fundamentals that you must absorb? Are there other definite strategies that you have to adopt and utilize? These are simply among the questions that you should find answers to. Better yet, read on and grasp a great deal of information about this trendy enterprising undertaking.

Options Trading for Dummies Simplified

As it goes, this type of trading points out to an investor who is determined to trade a certain stock at a higher or lower price within a specified time frame. The trader is then able to appoint the high or low price. Changes can thus be made in the prices especially when the market proves to be unstable. At the same time, higher prices can be assigned when the market is seen to be doing well. Since there is a targeted span of time for the expiration of the stocks, the investor is allowed to splurge into opportunities that entertain flexibility particularly in line with the predetermined outcomes of the market.

Take for example the following figures. In the United States of America, one option refers to about a hundred underlying shares. Meanwhile in Australia, the single option covers multiples of about a thousand of underlying shares. Since the trading is supposed to be done within a short time period, there are higher chances of collecting huge returns. On the other hand, just as when the market is unstable, the very nature of this trading likewise opens up probabilities of larger loss.

Explaining the Nature of Trading

The options can either be traded in groups of similar stocks or in singles. Here is the catch. The trading of single stocks is able to actually create higher risks of volatility because a single firm may be pursued by a variety of factors. Meanwhile, by trading in groups, the volatility is removed. In the end, the group itself ends up being rewarded.

More than investing a certain amount of money and taking intelligent guesses regarding the status of the trading market, you are also required to be familiar with the rules and standards of trading. You need tools to help you out in determining the existing market trends. You have to be equipped with a solid set of guidelines that will surely protect your investment. Even when there are materials that will show you how to do it, it still matters that you learn the ideologies by heart and execute them as you conclude the transactions.

Conclusion

More than ever, options trading is yet another rewarding opportunity that can enrich your financial standing. It is an occasion that allows the generation of profit in line with the investment made. There are a couple of techniques to apply so you should get the hang of it. Hard work, patience, and lots of efforts are all you need to exercise. After all, this is an undertaking that calls for your will to work.

Technorati Tags: Option Trading Basic, Option Trading for Dummies

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