Options can be some of the most exciting and productive areas of contemporary finance, and you can gain profits, which in many cases are more profitable than your initial investment.
Often options trading can be intimidating, especially at first. Still, with some practice and more knowledge, you quickly learn the hang of how options work and trade.-00vIn the next sections, we will give a quick cover on equity options and how to continue on your own.
What Is An Option?
Options are a kind of derivative that comes from a form of security based on a particular event.
Vanilla equity provides the holder with a right to the option but not an obligation to buy or sell as many shares at a specified price (strike price) on a specific date (expiration date).
What Is An Option Chain?
Option chains are just a set of tables that list options with their security prices according to their expiration dates and strike prices. Option chains often present traders with quick and simple ways of identifying the different options they could trade.
How To Trade Options
Once it is understood how options work, trading them is just about the same as placing the order for the traditional equity share.
Many retail brokers file their option chains as tabs on the security question page. For example, if you would like to trade a call option on AAPL, you could go to AAPL’s broker’s trading platform and look for the ‘options’ or the ‘option chain’ tab.
You may use an option chain to distinguish a specific put or call option based on the strike price and exercise dates that you would want to trade.
All that’s left to do is input the order type, desired prices, quantity, and expiration date. You are doing so as if you are using a traditional equity option. You are able to use stop orders and limit orders just like would typically be done if you were trading shares.
The difference that you want to keep in mind as you are trading options is that they can expire much, unlike shares. You will want to exercise your European and American style options before just American style options expire if you do not sell them beforehand.
Now practice around with one set of options to assure that you can understand how to exercise them before starting any significant trades, and welcome the big game of the exciting, profitable world that is options trading!
