Options Trading Guide For Novices And Dummies

An option ?? a ??ntr??t th?t ?ll?w? (but doesn't require) ?n ?nv??t?r to bu? ?r ??ll an und?rl??ng instrument like a ???ur?t?, ETF or ?v?n ?nd?x ?t a ?r?d?t?rm?n?d ?r??? ?v?r a ??rt??n ??r??d ?f t?m?. Bu??ng ?nd selling ??t??n? ?r? d?n? ?n th? ??t??n? market, which trades contracts b???d on securities. Bu??ng ?n ??t??n th?t ?ll?w? ??u to buy shares ?t a l?t?r time ?? called a "??ll ??t??n," wh?r??? bu??ng an ??t??n th?t ?ll?w? ??u t? ??ll shares at a l?t?r time is ??ll?d a "?ut ??t??n." H?w?v?r, ??t??n? ?r? not the ??m? th?ng ?? stocks because th?? d? not r??r???nt ?wn?r?h?? ?n a ??m??n?. And, ?lth?ugh futur?? use ??ntr??t? ju?t like options d?, ??t??n? are considered a lower risk due to the f??t that you ??n w?thdr?w (?r walk ?w?? fr?m) an ??t??n? ??ntr??t ?t ?n? point. The price ?f th? ??t??n (it's ?r?m?um) is thus a percentage of the und?rl??ng asset ?r security. When buying ?r ??ll?ng options, th? ?nv??t?r or tr?d?r has th? r?ght to exercise th?t option at any point up until the ?x??r?t??n d?t? - ?? simply bu??ng or ??ll?ng ?n option d???n't m??n ??u ??tu?ll? have t? exercise it ?t th? buy/sell ???nt. B???u?? ?f this ???t?m, ??t??n? are ??n??d?r?d derivative ???ur?t??? - wh??h m??n? th??r ?r??? is derived fr?m something ?l?? (?n th?? ????, from th? v?lu? of ????t? l?k? th? m?rk?t, ???ur?t??? ?r ?th?r und?rl??ng instruments). For th?? reason, ??t??n? ?r? often considered l??? risky th?n stocks (?f used ??rr??tl?). Th?r? ?r? tw? d?ff?r?nt kinds ?f ??t??n? - ??ll and ?ut ??t??n? - which g?v? th? investor th? r?ght (but n?t ?bl?g?t??n) t? sell or bu? ???ur?t???. A call option ?? a ??ntr??t th?t gives th? ?nv??t?r the r?ght to buy a certain ?m?unt of ?h?r?? (t?????ll? 100 ??r ??ntr??t) of a certain security ?r commodity ?t a ?????f??d price over a certain ?m?unt ?f time. For ?x?m?l?, a call ??t??n w?uld ?ll?w a tr?d?r to buy a ??rt??n ?m?unt of shares ?f either stock, b?nd?, ?r even other instruments like ETF? ?r ?nd?x?? ?t a future t?m? (by the ?x??r?t??n ?f th? contract). C?nv?r??l?, a ?ut ??t??n is a ??ntr??t th?t g?v?? th? ?nv??t?r th? r?ght t? ??ll a ??rt??n ?m?unt ?f shares (?g??n, t?????ll? 100 ??r ??ntr??t) ?f a ??rt??n ???ur?t? ?r ??mm?d?t? ?t a ?????f??d ?r??? over a certain ?m?unt ?f t?m?. Ju?t l?k? ??ll options, a put option ?ll?w? the tr?d?r th? r?ght (but n?t ?bl?g?t??n) to ??ll a ???ur?t? b? the ??ntr??t'? ?x??r?t??n d?t?.