• How To Trade Options

    We’ll show you how to trade options for huge profits with little money.  But first, How to trade options – that is the question, well, for many it is. Maybe you have heard of options and know that you always have an option to trade an option. But you haven’t yet, and you always secretly yearned for a simple little article to give you a few basics. Well, here I am, and let’s get started.

    • What is an Option?

    While, of course, trading options is not the same, it does in fact have a lot in common with trading stocks and futures. You always want to buy low and sell high.

    Easy Steps For Learning How To Trade Options

    Options are traded in what is called a contract. A contract is an agreement between two parties, a buyer and a seller, to buy or sell a specified amount of a specified underlying asset by a date in the future. Let’s use stock options as our example, because it is simple to explain how to trade options and we are simple people.

    When you own a stock, you actually own a part of that company, even if it’s only one little share. You own that stock and no one can take it away from you. You can sell it, if you want, but it’s yours. Now, you wish that you had enough funding in your trading account to be able to buy another 99 shares of that wonderful stock, but that’s not possible The kids are hungry and momma needs a new pair of shoes, so you look for other ideas.

    A stock option contract is representative of 100 shares of the underlying stock. So, there is a way to trade using a smaller trading account. That is by buying or selling stock options.

    If I sell you an option on a stock, I have in essence made an agreement with you to deliver those 100 shares of that stock for a price per share determined by the strike price (the agreed to price) of that option at the time the option expires. Well, now that might be a little confusing if you are new to this. It will become more clear in a minute after I explain how to trade options.

    If I buy a stock option from you, I have in essence made an agreement with you to accept those 100 shares of that stock for the price per share determined by the strike price (the agreed to price) of that option at the time the option expires.

    Can you see the beauty of this in that you can trade the stock market without having to actually invest the full amount that the tangible stock would cost? Trading options is very fluid and quite often turns out to be a better deal than actually buying and selling the stock and that was the purpose for writing on how to trade options.

    • Quick Points to Know

    I’m going to give you a quick and general rundown on what you need to know how to trade options. You need this, so be patient.

    • An option is the right, but not the obligation to buy or sell the underlying asset at a price already determined and at a date already determined. When the expiration of the option contract arrives, the owner of the option may exercise his option to either buy or sell at the strike price.
    • A call option gives the owner the right, but not the obligation, to buy the underlying asset.
    • A put option gives the owner the right, but not the obligation, to sell the underlying asset.
    • Expiration of the contract means that the predetermined date has arrived. The owner exercises or chooses not to exercise his right, and the contract disappears.
    • Exercise of the contract means the owner acts to buy (call options) or sell (put options) the underlying asset; or, if things have worked against the owner, the contract just disappears.
    • Seller of an option is also called the writer.
    • The strike price is the price that the underlying asset will be bought or sold at if the owner chooses to exercise his option. This price was predetermined at the time of the initial transaction.

    How To Trade Options on Stocks, Futures, and Forex

    You Can Learn to Trade Options

    If you are serious about trading options, after a time you will develop your own style and strategies. You will more fully understand the risks and how to lower them; the same way that you will learn to maximize your gains. While there are no promises, and it’s not something you will learn overnight; with persistence and focus, you can easily trade options like a pro. There are some really great opportunities out there for the smart investor.

    Here is a good introduction on how to trade options.

    Also, ask your broker for guidance – make him earn those fees.

    I think this quote sums up the key to success:

    “The desire to win is useless without the will to prepare.” — Gordon Wood

    Learning how to trade options is an exceptional way to power your portfolio to the next level and we urge you to educate yourself on the subject before taking your first options position.

    © 2011, www.daytraderoptions.com. All rights reserved.

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