by Das Brain
This is just an introduction to trading option contracts.
First of all what the heck is an option contract?
An option is a contract which gives you the right to buy or sell a particular stock or equity. The stock or equity is known as the option’s underlying instrument. For stock or equity options, the underlying instrument is a stock, exchange-traded fund (ETF), or similar product. The contract itself sets a specific price, called the strike price, at which the contract may be exercised, or acted upon. The option contract also has an expiration date. When the option contract expires, it no longer has value and will no longer exists.
Options come in two types, calls and puts, and you can buy or sell either one. Depending on what you want to do as an options investor, you will buy either calls or puts according to your strategy.
Is trading options risky?
Like stocks, bonds, and mutual funds, trading options carry no guarantees. You must be aware that it’s possible to lose all of the amount you invest, and sometimes more if you use margin (borrowed money).
As an options buyer, you risk the amount that you paid for the contracts. But as an options writer or seller, you take on a much higher level of risk. As an example, if you write an uncovered call which means you do not already own the stock, you can face unlimited potential loss. Since there is no cap on how high a stock price can go, this means that will have to purchase the stock and give it to the person who you sold the contracts to.
75% off Option Trading E-books at ReadLearnTrade.com
Generally though , since initial options investments usually requires less money than an actual stock positions, your potential cash losses as an options investor are usually smaller than if you’d bought the underlying stock or sold the stock short.
In Part 2 of “Intro To Option Trading” I will cover the topics below:
What are call option contracts?
Part 3
What are put option contracts?
Part 4
How do I trade CALL option contracts?
Part 5
How do I trade PUT option contracts?
Part 6
What else can I do with option contracts?
Bookmark at:
StumbleUpon | Digg | Del.icio.us | Dzone | Newsvine | Spurl | Simpy | Furl | Reddit | Yahoo! MyWeb
