Options

| December 8, 2011 | 0 Comments

Options trading can be a used for many purposes.  Most of which you’ll find here.  But remember, they’re literally books filled with different options strategies.

So, before you go out into the world and start trading options, we need to start with some basics.

Let’s take a quick look…

A stock option contract is an agreement between a buyer and a seller.  The contract conveys a right to a buy and an obligation to a seller.  The rights or obligations are broken down into contracts, each containing 100 shares at a pre-determined price.

What’s more… there are two types of option contracts, puts and calls.

A call option contract gives the buyer the right to purchase an underlying security for a specific price (strike price) over a specified time frame.

For instance… you buy 1 April $25 call option of Microsoft.  You have the right (option) to buy 100 shares of Microsoft stock for $25 per share any time before April expiration.

A put option contract gives the buyer the right (option) to sell an underlying security for a specific price (strike price) over a specified time frame.

For example… you buy 1 April $25 put option on Microsoft.  You have the right (option) to sell 100 shares of Microsoft stock for $25 per share any time before expiration.

What’s more… if you are a seller, the opposite would be true, with one exception.

Don’t forget.. a buyer of options have a right (option), a seller has an obligation.

Category: Options Trading Basics

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.

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