Options Trading Essentials for Beginners

Before starting any options trading or even think about it, you should to begin with be knowledgeable about the important facts as well as various elements related to options. In options terminology, an option is considered as a contract entered into by two parties. One party is the seller and the other party is the buyer in options terms.

According to the option trading agreement, the buyer has the permission to acquire or sell a mutually agreed upon asset at the approved price, on or before a particular date. The asset that is traded is considered as the primary asset. The established price is known as the strike price. On the other hand, the buyer is not under any particular obligation to purchase or sell and the buyer might choose not to take action upon the contract. If this occurs, the seller has the right to take a payment from the buyer instead of the option and this payment is known as the premium.

In option trading, there are two types of options.  One type is considered as call option and the other type is considered as put option. The buyer is entitled to purchase the approved upon asset under the call option, while the put option entitles the buyer to sell the asset. According to the options trading agreement, the seller should buy or sell the primary asset at an approved price. Then again, the buyer has the option of choosing to forego the right and allowing it to expire. In this case, the premium amount received by the seller remains with the seller whereas the buyer has no right to it. The primary asset can be any type of security, such as derivatives instrument such as futures contract, a bond or a stock, or a piece of property.

To learn how to make money on the stock market trading options, attend one of our Power Workshops on Options Trading offered every Thursday for FREEClick HERE to register now.

Share and Enjoy:
  • Print
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Mixx
  • Google Bookmarks
  • Blogplay

Tags:

Leave a Reply