What are options if we are talking about options trading? In this day of tight money and the huge fluctuations in the stock market, I decided to take a look at this subject to see if it worth my while to pursue.
The first thing that I have to do is to really get a basic understanding of what they are.
To begin with, options are nothing more than contracts that allow you or me to buy or sell specific products.
The product is a financial product and is the product's underlying interest or the underlying instrument.
Now, just like most contracts, it spells out some very specific details.
There are three different terms that we should define for you to understand what you will find in the contract.
There is something known as the strike price.
Another term is exercised and the third term is expiration date.
The term strike price refers to the specific price of the financial product.
The term exercised does not mean we have worn the product out doing sit-ups.
Here we mean that the product has been acted upon.
The final term, expiration date is the date that the option no longer has any value or worth and basically the product or option is no longer in existence.
There are two kinds of options.
The first is known as a call option.
The second kind of option is known as a put option.
You get to pick and choose which type of option you want to either purchase or get rid of.
You will make your decision based on what your goals as an options trader are.
This gives a very concise description of what options are.
In future articles we will discuss a lot of the details of what we do with these options.