Online Options Trading is an agreement between a buyer and a seller to sell an asset at an agreed upon and fixed price, at some specified future date.
The asset is usually of the financial kind — a stock or a futures value. The agreement is optional because the buyer is not obligated to buy the asset, whether or not it decreases or increases in value. The seller, however, is obligated to carry out the transaction.
Call Options are stock options that grant you the right, but not the obligation, to buy the underlying stock at a fixed price in the future. You buy Call Options when you are of the opinion that the stock is going to rise. If you buy call options with the right to buy the stock at its price right now, you could turn it around for a good profit should the stock rally because you own the right to buy it at a lower price! Call options effectively allows you to control those same profits as if you bought the stock at a small fraction of the price.
Put Options are stock options that grant you the right, but not the obligation, to sell the underlying stock at a fixed price in the future. You buy Put Options when you are of the opinion that the stock is going to fall. If you buy put options with the right to sell the stock at its price right now, you could turn it around for a good profit should the stock fall because you own the right to sell it at a higher price! Put options allows you to control those same profits as if you have shorted the stock at only a small fraction of the price without needing any margin.Options Moneyness is the most important concept to understand in Options Trading. Options Moneyness is the value of each stock options contract in relation to the price of the underlying stock. There are 3 states; In The Money (ITM), At The Money (ATM) and Out Of The Money (OTM). Out of money options expires worthless at expiration and the value of the stock options you bought rise in value as it gets more and more In The Money.
Options Trading Leverage: Perhaps the most popular use of stock options and the main reason why most people are drawn to Options Trading is for leverage. Leverage in layman terms simply means making a lot of money using an only very little money. Indeed, when you buy call options, you could make 100% profit when the stock has moved only 10% due to the small upfront money you paid for the call options! Conversely, when you buy put options, you could make 100% profit when the stock has only fallen 10% again due to the small upfront money you paid for those put options. However, leverage is a double-edged sword. It can produce extraordinary profits as well as very high losses, including losing all your money should your options expire worthless. Some common Options Strategy for leverage is Long Call Options and Bull Call Spreads.
Opening A Trading Account: When you have decided to take a dip into Options Trading, you would require a broker to help you do that. With today’s technology, you are able to conduct what is known as “Online Trading”. This means that you trade your money directly through an online portal without having to call a human broker at all! This gives you all the control you need to make precise trades. Furthermore, almost anyone from any countries can trade options in the US Market. Why should you trade options in the US Market? Simply because it has the biggest options trading market in the world and you can trade stock options of big names.
Options Trading Orders Types: Now that you have opened an Options Trading account and ready to buy your first stock options, you need to understand what the different kinds of options orders mean. Unlike stock trading where you either buy or sell a stock, there are a lot more you can do with stock options and placing trades with the wrong orders is one of the most common reasons why options trading beginners lose money.