Forward

Options can compliment a balanced online trading strategy.  They are considered to be a special class of financial instrument -- structured and exchange tradable.  An option represents the right, but not the obligation, to engage in a future transaction on an underlying security or index.  The holder can elect to exercise the option and complete the transaction, but is not required to do so.

Options can be used for a variety of investment goals.  They include executing speculative investments, protecting existing profits, setting contingent prices for entering (or exiting) the market and ensuring against dramatic downward moves in the market.

Not only is option trading fast-paced, fun and potentially profitable, but it is intellectually stimulating.  This site will get you started on the journey that include an introduction to profit curves, option pricing models and strange little metrics called “The Greeks”.

About This Site

Through reading sites like this and reading a view books, I gradually came to understand the basics of trading options.  I started trading puts and calls and promptly lost my shirt speculating on a corporate takeover.  The takeover never occurred.  In retrospect, it was probably a good thing I lost money initially.  Options are a form of leveraged investing and unless one has the Midas touch, there are times when you will lose money quickly.

Start With the Basics

The reason trading options can be fun is because it involves layered strategies.  To begin with you have two basic long positions – calls and puts.  You can buy call options if you think an underlying stock will go up and you can buy put options if you think the underlying stock will go down.  You can also go short (sell) options on both the call side and the put side.  Multi-leg strategies add another dimension.  Trading options is like playing Chess.  It makes you use your brain.

Here’s how I recommend you move forward.  First, learn what the difference is between intrinsic value and time value.  I did a short video on each concept.  Then understand the basics behind buying calls and puts.  Finally, graduate into shorting options as part of “spread strategies”. 

Don’t count on selling options short right off the bat.  That is called selling “naked options” – something that sounds risky and is risky.  Shorting options can expose a trader to losing many times the selling price of the option.  You have to be very experienced and have a ton of cash to sell options naked.  Trading spreads, on the other hand allows you to cover a short position with a similar-sized long position.

But before we get to spreads, let’s start with the basics. 

This site is dedicated to providing the basics of trading options from the point of view from someone who DOES NOT trade options for a living.  I am a self-directed investor and I have a real job, too.  I do things in my life that are both creative and mundane.  Trading options happens to be one of the more stimulating life activities – that is, of course, if I come out ahead on a trade or two.