Trading Options can be very risky.  Learning what an option is and the right strategies is vital to start trading them.  To begin with, one needs to learn what “risk” is?  Risk equals exposure!  Exposure is your potential for profit or loss.  (I think back on my early days of investing.  I didn’t understand the meaning of risk and as a result, my losses were staggering!!!)  So, once you have learned the “value” of risk, you can better understand the possibilities you have as an investor.  You still may not be ready to trade Options, but you have taken an important step towards learning how to “set-up” and strategize for these types of trades.

So, what is an option?   

A stock option is a contract between two parties that gives the buyer the right to buy or sell a stock at a predetermined price and within a specified time period.

A seller of the stock option is called an option writer, where the seller is paid a premium from the contract purchased by the buyer.

Note that there are two types of stock options:

A stock call option grants the purchaser the right but not the obligation to buy stock at a specified price which is known as the options strike price. A call option will increase in value when the underlying stock price rises.

A stock put option grants the buyer the right to sell stock at a set price and also known as the options strike price. Similar to a call, but basically in reverse. A put option will increase in value when the underlying stock price drops.

There are numerous techniques for buying and selling Options. 

In the near future, we will delve into this subject in greater detail to give you a greater understanding of Options trading.

David C…….. In the ZOO