Options Trading for Dummies

Options Trading for Dummies

If you are looking for options trading for dummies, here you have it. Before you venture into becoming an options trader you need to be sure that you fully understand what it is that you’re getting yourself into. Trading in options can be a great way of making a living, although like any trading of its kind, it does carry risk. Your aim will obviously, always be to find the best trades. What do we mean by best trades? Well, the trades with the lowest risk and the highest potential gain.

As indicated in quite a few options trading for dummies books, people who buy options are referred to as holders and people who sell options are also known as writers. A call option will give the right to the owner (but that does not mean they are obligated) to purchase an underlying asset at a set price within a certain timeframe. A put option will give the owner the right, (but again this does not mean they must) to relinquish an underlying asset at a set price within a certain timeframe.

If you’re not even sure what a stock option is, simply put, an option is a security which is subject to a binding agreement. Options can give you the right to purchase or sell an underlying security or asset, although you have absolutely no obligation. Options don’t get their value from the actual value of the stock; their value is based in the underlying security and time.

As an options trader you should always be looking for the cheapest deal. If you can find an option that you deem to be greatly under-priced, then you can take advantage of that, and start making some money. One of the downfalls that a lot of people encounter is when it comes to the premium of the option. Every option has a premium; this is basically the fee that the option costs. Some independent options traders will have fairly high fees which can obviously impact on the true value of the option that you have, and it can ultimately end up hurting the transaction.

If you are buying (call) then your break-even price will be the strike price in addition to the premium that you paid for the option. On the other hand if you’re selling (put) then your break-even becomes the strike price minus the premium paid.

You must always keep in mind that trading in options is not the same thing as investing. Options trading is speculating on an outcome, and as such will always carry risk. This risk can of course be minimized with proper research and insight. To make sure that you achieve your goals when it comes to options trading you will have to make sure that you are constantly researching, via the internet and other news sources as world events will play a key role in the value of stocks and as will directly have an impact on the value of your stock options. If you do all of the research required and stay up to date, and apply options trading for dummies strategies in your trading, there is no reason why you cannot make a decent sum of money from options trading.

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