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: Options Spreads
  8. Options Basics: Options Risks
  9. Options Basics: Conclusion

We hope this tutorial has given you some insight into the world of options. Once again, we must emphasize that options aren't for all investors. Options are sophisticated trading tools that can be dangerous if you don't educate yourself before using them. Please use this tutorial as it was intended – as a starting point to learning more about options.

Let's recap:

  • An option is a contract giving the buyer the right but not the obligation to buy or sell an underlying asset at a specific price on or before a certain date.
  • Options are derivatives because they derive their value from an underlying asset.
  • A call gives the holder the right to buy an asset at a certain price within a specific period of time.
  • A put gives the holder the right to sell an asset at a certain price within a specific period of time.
  • There are four types of participants in options markets: buyers of calls, sellers of calls, buyers of puts, and sellers of puts.
  • Buyers are often referred to as holders and sellers are also referred to as writers.
  • The price at which an underlying stock can be purchased or sold is called the strike price.
  • The total cost of an option is called the premium, which is determined by factors including the stock price, strike price and time remaining until expiration.
  • The premium of an option increases as the chances of the event of the option finishing in-the-money increases.
  • A stock option contract typically represents 100 shares of the underlying stock.
  • Investors use options both to speculate and hedge risk.
  • Spreads and synthetic positions highlight the versatility of options contracts
  • Employee stock options are different from listed options because they are a contract between the company and the holder. (Employee stock options do not involve any third parties.)
  • The two main classifications of options are American and European. Options can also be distinguished as listed/OTC, or vanilla/exotic, among other classification schemes.
  • Long term options are known as LEAPS.
  • Options risks are defined by the greeks and allows options risks to be understood and evaluated.

Related Articles
  1. Trading

    Getting Acquainted With Options Trading

    Learn about trading stock options, including some basic options trading terminology.
  2. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  3. Investing

    Why Options Trading Is Not for the Faint of Heart

    Trading options is not easy and should only be done under the guidance of a professional.
  4. Trading

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
Frequently Asked Questions
  1. What are the types of costs in cost accounting?

    Cost accounting aids in decision-making by helping a company's management evaluate its costs. There are various types of ...
  2. What is considered a healthy operating profit margin?

    Operating profit margin is a profitability ratio that investors use when evaluating a company. Comparing a company's margins ...
  3. What's the difference between a straddle and a strangle?

    Straddles and strangles are option strategies that take advantage of significant moves up or down in a stock's price. Learn ...
  4. How can I create a yield curve in Excel?

    Understand how a yield curve depicts the term structures of interest rates,, discover how to measure U.S. Treasury bonds ...
Trading Center