trading is the very basis of this site, and on this page you will find
links to articles explaining options, detailing different types of
options, discussing option trading benefits and risks, and more. For
more articles on option trading strategy, see the 'Strategy' section.
Understanding Option Trading
These articles offer a basic overview of what stock options are, where and how they started, the basis of option trading, and what the main types of options are.
Learning option trading starts with understanding what options are and how to use them. This article outlines tools and techniques that can help you make a great start to your option trading career.
Getting the most out of your trading, whether you are bullish or bearish on the market is extremely important if you wish to be profitable; particularly in the arena of options trading.
This article details simple steps that will get you ready to start trading stock and options in a short period of time, smoothly and easily.
Winning with stock options trading is not as difficult as some people would have you believe, and developing effective trading techniques, can lead to high rewards.
Online option trading allows an individual to participate in trading stock options from virtually any location, with online trading companies and research services providing the facilities needed.
A stock option trading system offers strategies for maximizing profit and minimizing risk, as well as identifying worthwhile trading opportunities by using analysis methods and indicators.
There are many advantages to option trading as an investment strategy. One of the main advantages is that trading options requires you to commit less capital to an investment than a stock or other type of market trade requires.
The barrier to entry for options is now next to nothing. Any investor can participate in option trading. More products with highly efficient markets are being introduced.
Whether a market is moving up, down or sideways, there are many reasons that trading stock options can offer great opportunities to the investor.
The option market refers to the sum total of all the buying and selling of option contracts which includes stock options as well as options based on other securities, such as futures or indices.
Option use through history has been widespread and varied. Option trading has been used for many diverse conditions including real estate and bond contracts.
Financial leverage is one of the biggest benefits of trading options. Leverage is created by making your investments work harder for you to maximize profit.
Hedging with options is just one way that trading options can benefit an investor, and wisely executed, hedging can be an effective risk management strategy.
A collar option is a hedging strategy that is used to protect an investor’s position in a stock and is executed by simultaneously buying a put option and writing a call option on the underlying asset.
An option strangle may be an effective trading approach for highly volatile assets in which the direction of movement is unclear, as profit can be made with substantial movement either up or down.
Buying puts is probably the closest alternative to using a stop loss. But it does have additional benefits and drawbacks.
The risks of options trading are limited to the price of the cost of the premium, which is an attractive benefit of trading options. Options allow the trader to control a large number of shares at a fraction of the cost of actually purchasing those shares.
Types of Options and Option Trading
The basic principle of trading these options is that if the price of the stock on which you buy an option rises, you make money.
These options have the opposite purpose to a call option meaning that if the price of the stock on which you buy an option falls, you make money.
Mini Options are a scaled-down version of standard options, and permit investors to trade options on 10-share lots rather than the customary 100 shares.
Weekly Options are options listed with approximately one week to expiration.
Stock option day trading involves entering and exiting each trade within the same trading day. The trader seeks to generate quick profits, and often executes frequent trades to reach their target.
Binary option trading uses contracts which, upon expiry, will either result in a predetermined pay-off or nothing at all.
Futures options trading involves buying an option contract in which the underlying asset is a futures contract.
Commodity options trading is the buying and selling of option contracts whose underlying asset is a commodity. Profit can be made by exercising the contract, or by selling the option at an increase.
Currency option trading uses option contracts based on foreign exchange currency pairs, entitling the holder to change money from one currency to another at a specified rate at or before expiration.
Index options trading allows a trader to participate in the movement of an entire cross section of stocks for a single premium, with inbuilt diversification translating to lower risk and volatility.
CBOE Range options were designed to provide individual investors with a lower-risk, lower-cost way to trade S&P 500 Index options.
The Asian option, also known as the average value option, is usually settled in cash with the payout calculated as the average value of the underlying asset at fixed points during the contract.
Options Pricing and General Information
The Black Scholes Model is considered the standard model for valuing options.
Option costs consist not only of intrinsic value but also time value, which factors in the implied volatility of the stock.
Moneyness is a trading term which refers to the relationship between an option’s strike price, and the market price of the underlying security at any given moment.
Margin and option trading relates to the initial capital that must be deposited and the balance that must be maintained in a margin trading account.
Option greeks are values calculated with mathematical formulae and denoted by characters from the Greek language that measure the impact of certain external factors on the value of an option.
This important measure tells us how much the price of the option will change in relation to the price of the underlying stock.
Article discussing methods to help determine the most appropriate options size.
On the third Friday of the month equity options expire which may result
in an expiration cycle that is five weeks long, rather than the typical four weeks.
An option broker is an individual or company that arranges the buying and selling of options on behalf of traders. This article will help a trader to choose a broker who meets their particular needs.
An options exchange is an organized securities exchange that provides a location and framework for trading standardized options contracts.