Option Trading For The Novice
Posted on Jan 01 2009 | Tagged as: Finance
Option trading is fast becoming one of the hypes of this generation. Option trading has been and still is being taught all over the world as the definitive investment instrument for entry to the fast track. Popular speakers like Robert Kiyosaki and Robert G Allen have fuelled this option trading hype in a very big way. The steadily rising number of option contracts that have been traded over the past years is evidence to the rising popularity of option trading.
Note that the writer of the option is agreeing to buy the underlying asset if the put holder exercises the option. In exchange for having this option, the buyer pays the writer a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus, taking a short position in the option, they are not the only sellers. An option holder can also sell his long position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price.
The option specifies a price at which the underlying asset can be bought, and this is called the exercise price. It is called this because the buyer exercises the option before its expiration date when he decides to buy the asset from the seller. At the time that the option is sold, the buyer must pay a premium to make it worth something to the seller. That is the only money that the seller can make on the option trade.
The hazard here is that his losses, potentially, may be unlimited. Fluctuations of a premium are in response to current market value of the exercise/security price, the time between the strike and the expiration, as well as the demands and supply of the market. The options’ holder is one who will call or put the option. The potential for profit knows no limits, and he’s got limited risk of loss held to the premiums that he paid to the writer of the option in question.
Option trading online is now becoming a very known way of trading options. It is very easy and simple. Options trading is very much like futures trading. They both go through a process of buying stocks and a pre-determined price and selling them on a marketplace once the price is higher then what they were purchases for.
Option trading is more convenient than ever when you do it online. Just log on to your online option trading account and you will be able to handle any transaction from your home computer with ease. You can even use the internet to get an online stock option education, with the many tutorials and websites available that specialize in option trading.
Option trading online is now becoming a very known way of trading options. Options trading is very much like futures trading. They both go through a process of buying stocks and a pre-determined price and selling them on a marketplace once the price is higher then what they were purchases for. It’s a good idea to get stock option education, perhaps through an option tutorial. The option specifies a price at which the underlying asset can be bought, and this is called the exercise price. It is called this because the buyer exercises the option before its expiration dat
- David Baxwell