Options Investing

Greetings!

Welcome to the wonderful world of Options investing (or trading if you prefer). This page is designed to give you an overview of options trading. While I may go into more advanced discussion and strategies later, I wanted to keep it easy to understand for those newer to options investing.

I hope you enjoy this page and that is serves as a springboard to your successful trading journey. I should also point out some Websites that I visit often. These are great financial sites in general:

• Penny Stocks
• Yahoo! Finance
• Google Finance
• MarketWatch.com
  

So just what in the heck are these things called "options" anyway? No, I'm not talking about the options you have in life.

The options I'm talking about are financial instruments that can be traded on an open market. They come in two forms: calls and puts.

Just like with stocks, you can benefit from the Bulls and the Bears (think buying and shorting here).

And the volatility will greatly affect the value of options. But, let's expand this further.

An option is basically a contract between two parties (buyer/seller). The buyer gets the "option" to buy or sell a specific asset. As the name implies, the buyer isn't forced to act. Options expire and they have an agreed price, which is called the strike price.

So why sell an option then? Well, it's not all one-sided. The seller of the option collects a premium from the buyer.

So, let’s talk about our two options: call and put.

A call option gives the buyer the ability to buy at the strike price.

A put option gives the buyer the ability to sell at the strike price.

So, if the buy does indeed exercise “the right” on the option, the seller is obligated to buy/sell the asset at the agreed price.

And the buyer also has the ability to do nothing and let the options expire.

You’ll notice I didn’t use the word “stock” and instead used “asset.” That’s because the option could be for stocks, bonds or derivative instruments (like futures).

You may have read that and thought you found the perfect investment vehicle, thinking there's no risk. Well, options are a great way to make money in the market, but there's always risk.

It's really a game of timing. You could let your options expire and risk it all or you can exit them before they expire. As with any investment procedure, how well you do things and your timing make the difference.

I recommend you read some good books on options investing, perhaps read some sites and take your time before you jump in.