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Options Trading Basics - Introduction
Options Trading is truly the favorite financial instrument of small retail investors over the past few decades all over the world.
Options Trading allows investors with very small funds to gain disproportionately big profits and to control stocks that would
otherwise be too expensive to own. Indeed, there are many Options Trading gurus out there who have created million dollar accounts
out of only $20,000 or $50,000. In fact, you could start options trading even if you have only $80 to spare!
Options Trading also opens a whole new world of possibilities as the true power of stock options
lies in its versatility. You could trade options for leverage as well as for protection and change the directional bias in your portfolio
very quickly and conveniently.
Because Options Trading is so powerful, its also extremely complex and dangerous if it is not handled carefully. Options traders need
a very firm knowledge of Options Trading Basics before even thinking of ways to make money out of it. Here, we shall impart to you
all the basic options trading knowledge you need to get started... for free!
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Many people attend
weekend seminars for thousands of dollars just to learn Options Trading basics.
Here, we shall attempt to cover most of these Options Trading basics so that you can decide if Options Trading is your cup of tea and whether you wish to
pursue it further or not. Remember, the topics recommended here are only the basics to get you start and you certainly need to pursue deeper investment knowledge
to make a consistent profit from Options Trading.
Content
What Stock Options Are |
Call Options |
Put Options |
Risks Of Options Trading |
Options Moneyness |
Options Trading For Leverage |
Options Trading For Protection |
Opening A Trading Account |
Types Of Options Orders
Options Trading Basics - What Stock Options Are
The most important thing to learn before you can even consider Options Trading is exactly what Stock Options are. In Options Trading,
we are not trading the stocks itself. Instead, we are merely trading the right to own or sell those stocks and these contracts to buy
or sell the underlying stocks are known as stock options. Stock Options are derivative instruments just like stock futures.
Stock Options costs only very little money to buy while allowing you to
control the profits on the underlying stocks as if you owned those stocks! It is very similar to the Option To Purchse you signed when
you bought your house. If the price of the stock rallies strongly after you purchase its stock options, you would make those same profits
without buying the stocks at all! This creates the explosive profits that you read about in Options Trading all the time.
Study the tutorial on Stock Options now.
Options Trading Basics - Call Options
Call Options are stock options that grants you the right, but not the obligation, to buy the underlying stock at a fixed price in the future.
You buy Call Options when you are of the opinion that the stock is going to rise. If you buy call options with the right to buy
the stock at its price right now, you could turn it around for a good profit should the stock rally because you own the right to buy it at
a lower price! Call options effectively allows you to control those same profits as if you bought the stock at only a small fraction of
the price.
Study the tutorial on Call Options now.
Options Trading Basics - Put Options
Put Options are stock options that grants you the right, but not the obligation, to sell the underlying stock at a fixed price in the future.
You buy Put Options when you are of the opinion that the stock is going to fall. If you buy put options with the right to sell
the stock at its price right now, you could turn it around for a good profit should the stock fall because you own the right to sell it at
a higher price! Put options effectively allows you to control those same profits as if you have shorted the stock at only a small fraction of
the price without needing any margin.
Study the tutorial on Put Options now.
Options Trading Basics - Risks Of Options Trading
Options Trading can be extremely risky in many ways and the biggest reason of all is the fact that stock options could expire worthless
along with all your money put into buying them if your opinion on the stock is wrong. This is what we call "expiring out of the money".
This is why understanding Options Moneyness is so important to anyone who wish to start Options Trading.
Study the tutorial on Options Trading Risks now.
Options Trading Basics - Options Moneyness
Options Moneyness is the most important concept to understand in Options Trading. Options Moneyness is the value of each stock options contract
in relation to the price of the underlying stock. There are 3 states; In The Money (ITM), At The Money (ATM) and Out Of The Money (OTM).
Out of the money options expires worthless at expiration and the value of the stock options you bought rise in value as it gets more and more
In The Money.
Study the tutorial on Options Moneyness now.
Options Trading Basics - Options Trading For Leverage
Perhaps the most popular use of stock options and the main reason why most people are drawn to Options Trading is for leverage. Leverage in layman terms simply means making a lot of money using only very
little money. Indeed, when you buy call options, you could make 100% profit when the stock has moved only 10% due to the small upfront money
you paid for the call options! Conversely, when you buy put options, you could make 100% profit when the stock has only fallen 10% again due to
the small upfront money you paid for those put options. However, leverage is a double edged sword. It can produce extraordinary profits as well
as very high losses, including losing all your money should your options expire worthless. Some common Options Strategy for leverage are
Long Call Options and
Bull Call Spreads.
Study the tutorial on Options Leverage now.
Get a list of all the Options strategies now.
Options Trading Basics - Options Trading For Protection
Stock options are excellent hedging tools too. You could use put options to seal in the profits in your stocks without selling your stocks at
all using what is known as a
Protective Put. You could also control the same amount of
stocks while risking very little money using what is known as a Fiduciary Call.
Options Trading Basics - Opening A Trading Account
When you have decided to take a dip into Options Trading, you would require a broker to help you do that. With today's technology,
you are able to conduct what is known as "Online Trading". This means that you trade your money directly through an online portal without
having to call a human broker at all! This gives you all the control you need to make precise trades. Furthermore, almost anyone from
any countries can trade options in the US Market. Why should you trade options in the US Market? Simply because it has the biggest options
trading market in the world and you can trade stock options of big names such as Microsoft and StarBucks.
Open an Online Options Trading Broker account now.
Options Trading Basics - Types Of Options Orders
Now that you have opened an Options Trading account and ready to buy your first stock options, you need to understand what the different
kinds of options orders mean. Unlike stock trading where you either buy or short a stock, there are a lot more you can do with stock options
and placing trades with the wrong orders is one of the most common reason why options trading beginners lose money.
Learn all the Types Of Options Orders now.
Move On To The Advanced Options Trading Guide!
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Important Disclaimer:
Options involve risk and are not suitable for all investors.
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