Option trading has become much more popular with investors in recent years. One problem with that is many investors are jumping in without the education required to trade options safely.
If you’ve been looking over your portfolio and are thinking about trading in options, then option education should definitely be part of your plan. Though all trading involves some risk, options tend to be more risky than stocks, bonds and mutual funds. On the other hand, if you don’t mind taking a leap now and then, options present an amazing opportunity to diversify into other securities. And the good news is you can choose to be as conservative or speculative as you wish with this type of investment. Either way, it’s recommended that you learn all you can about it before diving in headfirst.
What are Options?
In option education, you’ll learn about how to invest with options, important need-to-know terminology, and much more. But it’s good to know some basic information before getting started. Options are defined as binding contracts that provide a buyer with the right to buy/sell a particular asset before a specified date or at a certain price. It’s not an obligation to buy/sell, but there are usually strict terms written within the contract.
Basically, you’re not paying for the actual asset yet when purchasing an option, but you’re actually buying the “right” to get the asset when the time comes. If you decide not to buy the asset, then you forfeit the amount that you paid for the option. Let’s say you would like to buy a stock at a certain price, but don’t have all the money just yet to buy it. You can buy the option instead and plan to purchase the stock in the future at that price. What you pay for the option might save you thousands of dollars if you can indeed buy the stock at that particular price soon. But if something were to happen that causes you not to be able to go through with the stock buying, then your option and the money you paid for it will be lost.
While options can be quite risky because you never really know what the future will hold, they can also provide you with more flexibility in your trading and allow you to secure stocks or other assets (even a home investment), if you’re expecting to have money for the investment soon. And keep in mind that options don’t obligate you to buy anything…just to secure the purchase for you if you want to buy an asset later.
Trading Education for Buying Options
With option education, you’ll be able to discover what options are with more in-depth explanations. Learn about the basics, the difference between call and put options, how an option chain works and more. The best way to learn is through online education. Some trading or broker websites offer free option and trading education to better equip you before you enter the world of trading.
Just remember that most of the free education is theoretical. They teach you about trading options, but not how to trade options. You’ll need a more in depth course, one that actually teaches you option trading strategies for that.
