Learn to Trade Options

Options trading, as many would profess, isn’t for the faint-hearted. This is mainly because they believe there are large risks surrounding the trades. In reality, the risks that so many fear can easily be managed. If you learn to trade options the right way before jumping in, the income that can be gained far exceeds the risk you will take making it.

So what are the basics of trading options? Primarily, an option is defined as the contract that links the holder (often called the buyer) and the writer (also referred to as the seller). This contract gives the holder the right to purchase or sell the subject of the option (the underlying asset) at a specified price (the strike price). And the option must be exercised within a specified period of time.

As a consideration for having granted the contract, the holder usually pays the writer a premium. This premium serves as a sort of compensation for the writer for any risks that he would undertake in having accepted the legal obligation that the option brings about. Here, again, the risks are mentioned but if you learn to trade options the way professionals do, then you’ll have a much higher chance of gaining rather than losing.

What may encourage the writer to agree to a contract is the chance that the option would expire before it is exercised. When this happens the premium will be pocketed by the writer. If you are the seller of the option that is exactly what you want to have happen, but if you are the buyer, that’s not what you want. If you learn to trade options effectively you’ll know how to play both sides and make money both ways.

There are two basic types of options – put and call options. Put options give the holder the right to sell the underlying asset at the strike price any time prior to the expiration date of the option.

With call options, writers grant holders the right to purchase the underlying asset at the strike price any time prior to the expiration date of the contract.

There are many properties that can become the subject of options. Some of the most common are currencies, securities, indices, and commodities.

Get a good grasp of these terms and how they are used in the market and you should be well on your way to becoming an expert. Learn to trade options the right way and you’ll be well on your way to making a ton of money in the market.

Learn to Trade Options: Earn a Living Trading Options – Video 3 Part 1

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