Options University Courses

What is "options trading"? The easiest way to learn it initially is to understand the word “options". An option is a choice. If you dealing with option, you are making a contract that gives you the right, but not the obligation, to purchase a volume of stock at a specific price at a future date.

In simple explanation, it means we lock the price of the stock we promise to buy at the certain date by paying certain amount of money to the owner in advanced. For example, the stock or product is price of $50, but we do not have that much money available, and will not have it until the end of the week. So, we purchase an option from the owner to buy the stocks or products for $50 by Saturday afternoon. We pay him $5 dollars for that option. The $5 dollars would not be refundable if we didn’t take any action to pay for the full $50 for that stocks or products.

Before the week ends, it is discovered that the painting is actually the work of a well known local artist, and has a value of $500. Since we have the option to buy the painting for $50, we quickly exercise our option. When we turn around and sell the painting for $500, we have realized a profit of $445. This is $500 minus $50 for the cost of the painting minus the $5 we paid for the option contract.

As in options trading, we do not have any obligation to buy it, and simply by not doing so. If we didn’t carry out obligation to buy it, at the bottom line, we only do lose our $5 investment, but that is the limit of our loses as according to the example stated above.

But in the real option trading arena, thing happen more complicated than you imaging. But these basic principles remain the same. Options are known as derivatives because the value derives from something else.

You can be the person to sell or buy in options trading. An option to buy is called "call". An [tag-tec]option to sell[/tag-tec] is called "put". And "Strike price" is another basic terminology used in options trading. The "strike price" simple the level of price must be reached before a call option can show a profit. In our example above, the strike price would be $50.

However, your risk capital is the most fundamental factor you have to consider even before considering buying a single option. Risk capital is the money that you can afford to lose. If you wants to make a good profit in options trading, Perhaps, the more you understand about fascinating investment of options trading by taking some extra efforts to study and learn, the less the risk will be.

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