Options Trading for Dummies

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Trading stock options is a way to get into stock investing without huge amounts of money while at the same time limiting your risk of losing money. Trading options has its own vocabulary and procedures. While much of it may be counterintuitive, there are similarities between stock options and buying insurance to protect an asset, such as your car.

An option represents a choice an investor has when dealing with stocks, equities, exchange traded funds and other similar products. The option itself is a contract for shares with a predetermined price, called the strike price, and an expiration date. There are stock options trading for dummies basic types of options, referred to as calls and puts, synonymous with buying and selling. An easy way to remember these is to think of buying as "calling in" and selling as "putting out.

The seller, called stock options trading for dummies writer in options terms, is obligated to sell or buy if the buyer exercises the option. The buyer of an option has the right, but not the obligation, to buy or sell under terms of the option contract. Consider car insurance for stock options trading for dummies moment.

You purchase insurance for a fraction of the cash value of your car, in case you have stock options trading for dummies accident and have to repair or replace your car. Your insurance premium gives you assurance that you are not risking the total value of your car. Purchasing an option contract is similar. The buyer predicts a stock will gain or lose value by a future date, and purchases an option where the strike price is lower or higher than the stock's predicted value.

If stock options trading for dummies buyer is wrong, he lets the option expire, forfeiting only the stock option premium -- not the loss of value for those shares. When the value of a stock rises above the strike price of a call option before it expires, the buyer could exercise the option and purchase the shares. However, now the option has a value of its own, and this is typically how options trading makes money.

The buyer may now sell his contract to someone who wants to purchase that stock cheaper than the current market rate, which the option writer is obligated to provide. The value of that sale depends on the difference between strike price and current value, and the time remaining on the option. As long as the buyer recoups the option premium, a profit is realized.

The buyer of a put option wants the value of a stock to fall below the strike price. In this case, the writer is obligated to buy shares at the buyer's option for a price which is now higher than the market.

That option contract becomes attractive to holders of the falling stock. The buyer earns a profit by selling the put option for an amount exceeding the option premium. Options Trading for Dummies. Share Share on Facebook. Close-up hand on stock chart. Please enter a valid email.

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Have you ever been curious about options? Heard people talk about how much money they made playing with options? You want to get in on the action and become an options trader yourself but not sure how to get started? I'm sure there are plenty of options tutorial web sites out there which explain options to you but you may not understand it because they don't give enough examples or explain it in clear plain english.

Here you will learn the basics of options, mini options, how to make money trading options, and different option strategies; all in plain english anyone can understand.

This web site is meant to be the ultimate Options Tutorial for the beginner. Not Trading Options , but Trading Options You next stop is reading the Options Basics article to learn about What is an Option, how to trade options, and option characteristics. You can also view our blog to take advantage of our latest recommendations of options trades.

Our newest addition is Mini Options! Learn more about Mini Options by clicking here. You can also refer to these web sites below while you are reading some of the material from this web site. Options for Dummies Learn how to trade options. Welcome to Options for Dummies Have you ever been curious about options?

Designed by The entire content of this website is meant for educational purposes only. It should not be construed as investment advice. And I am certainly not making any claims about the profitability of options trading.

Options are inherently risky and you should carefully consider the risks before investing any money. The examples given are not necessarily using real world numbers as it is used for illustrative purposes. Any person s reading the material on this website should consult their own professional investment adviser before investing in options or any other security.