Options Basics Tutorial
  1. Options Basics: Introduction
  2. Options Basics: What Are Options?
  3. Options Basics: Why Use Options?
  4. Options Basics: How Options Work
  5. Options Basics: Types Of Options
  6. Options Basics: How To Read An Options Table
  7. Options Basics: Conclusion

Options Basics: Introduction

Nowadays, many investors' portfolios include investments such as mutual funds, stocks and bonds. But the variety of securities you have at your disposal does not end there. Another type of security, called an option, presents a world of opportunity to sophisticated investors.

The power of options lies in their versatility. They enable you to adapt or adjust your position according to any situation that arises. Options can be as speculative or as conservative as you want. This means you can do everything from protecting a position from a decline to outright betting on the movement of a market or index.

This versatility, however, does not come without its costs. Options are complex securities and can be extremely risky. This is why, when trading options, you'll see a disclaimer like the following:

Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital.

Despite what anybody tells you, option trading involves risk, especially if you don't know what you are doing. Because of this, many people suggest you steer clear of options and forget their existence.

On the other hand, being ignorant of any type of investment places you in a weak position. Perhaps the speculative nature of options doesn't fit your style. No problem - then don't speculate in options. But, before you decide not to invest in options, you should understand them. Not learning how options function is as dangerous as jumping right in: without knowing about options you would not only forfeit having another item in your investing toolbox but also lose insight into the workings of some of the world's largest corporations. Whether it is to hedge the risk of foreign-exchange transactions or to give employees ownership in the form of stock options, most multi-nationals today use options in some form or another.

This tutorial will introduce you to the fundamentals of options. Keep in mind that most options traders have many years of experience, so don't expect to be an expert immediately after reading this tutorial. If you aren't familiar with how the stock market works, check out the Stock Basics tutorial.

Options Basics: What Are Options?

  1. Options Basics: Introduction
  2. Options Basics: What Are Options?
  3. Options Basics: Why Use Options?
  4. Options Basics: How Options Work
  5. Options Basics: Types Of Options
  6. Options Basics: How To Read An Options Table
  7. Options Basics: Conclusion
RELATED TERMS
  1. Exotic Option

    An option that differs from common American or European options ...
  2. Back Fee

    A payment made to the writer of a compound option in the case ...
  3. Call On A Put

    One of the four types of compound options, this is a call option ...
  4. Russian Option

    An option that gives the holder the right, but not the obligation, ...
  5. European Option

    An option that can only be exercised at the end of its life, ...
  6. Forex Option & Currency Trading Options

    A security that allows currency traders to realize gains without ...
RELATED FAQS
  1. How can I find out which stocks also trade as options?

    The trading of options has become increasingly popular among retail investors as they become aware of the many different ... Read Answer >>
  2. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  3. What's the difference between a regular option and an exotic option?

    Before learning about exotic options, you should have a fairly good understanding of regular options. Both types of options ... Read Answer >>
  4. Do you have to be an expert investor to trade put options?

    Learn about investing in put options and the associated risks. Explore how options can provide risk, which is precisely defined ... Read Answer >>
  5. What do the phrases "sell to open", "buy to close", "buy to open", and "sell to close" ...

    The confusing terminology mentioned in the question deals with entering and exiting option orders. In review, there are two ... Read Answer >>
  6. Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar ... Read Answer >>

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