Options Basics Tutorial

From there, we'll look at some basic option strategies to better understand the building blocks to more advanced strategies. This is why, when trading options with a broker, you usually see a disclaimer similar to the following: Trading options is not easy and should only be done under the guidance of a professional. Gain a thorough understanding of factors that affect price and how it is essential in options trading. Time value is whatever is left, and factors in how volatile the stock is, the time to expiration and interest rates, among other elements.

Trading options is not easy and should only be done under the guidance of a professional. Trading. Call options: Right to buy versus obligation Learn about the four basic option strategies for.

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Every options contract has an expiration date that indicates the last day you can exercise the option. Your choices are limited to the ones offered when you call up an option chain. Expiration dates can range from days to months to years. Daily and weekly options tend to be the riskiest and are reserved for seasoned option traders. For long-term investors, monthly and yearly expiration dates are preferable. Longer expirations give the stock more time to move and time for your investment thesis to play out.

A longer expiration is also useful because the option can retain time value, even if the stock trades below the strike price. If a trade has gone against them, they can usually still sell any time value remaining on the option — and this is more likely if the option contract is longer.

Options trading can be complicated. That education can come in many forms, including:. How to open a brokerage account. Reliable customer service should be a high priority, particularly for newer options traders.

Consider what kind of contact you prefer. Does the broker have a dedicated trading desk on call? What hours is it staffed? What about representatives who can answer questions about your account? Even before you apply for an account, reach out and ask some questions to see if the answers and response time are satisfactory. Options trading platforms come in all shapes and sizes. They can be web- or software-based, desktop or online only, have separate platforms for basic and advanced trading, offer full or partial mobile functionality, or some combination of the above.

Check to see if the fancy stuff costs extra. For example, most brokers provide free delayed quotes, lagging 20 minutes behind market data, but charge a fee for a real-time feed. Similarly, some pro-level tools may be available only to customers who meet monthly or quarterly trading activity or account balance minimums.

But because commissions provide a convenient side-by-side comparison, they often are the first things people look at when picking an options broker. Of course, the less you pay in fees the more profit you keep. Platform fees, data fees, inactivity fees and fill-in-the-blank fees can easily cancel out the savings you might get from going with a broker that charges a few bucks less for commissions. In recent years, contracts have been introduced with a variety of different expiration dates:.

Option symbols include the exact expiration dates so be sure to take note of them before you trade. Another important concept is the difference between the deliverable also known as the contract size or options package and the options multiplier. In an options transaction, the deliverable defines the shares and the multiplier defines the dollars. Unless weekly options are available, standard equity options typically trade four months at a time: When you look at quotes on an option, you'll typically see the current calendar month unless the current expiration has already occurred , the next calendar month, and depending on the cycle two separate months in the future.

All equity options are classified as either first cycle, second cycle, or third cycle. The cycle affects only the two distant months, not the front and next months. Many ETF's and indexes trade more than four months at a time. You can take either a bullish or bearish position using either calls or puts; it simply depends on whether you buy or sell them first. In the "Bullish vs. As you can see, a long call position is bullish, but a short call position is bearish.

By contrast, a long put position is bearish, but a short put position is bullish. In the article Putting Options to Work, we'll explore these four strategies in more detail, discuss how to select a strike price, and touch on how basic options work with stocks for investors seeking income or downside protection. Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Call Schwab at for a current copy.

Covered calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received.

Past performance is no indication or "guarantee" of future results. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Commissions, taxes and transaction costs are not included in this discussion, but can affect final outcome and should be considered. Please contact a tax advisor for the tax implications involved in these strategies.

The information presented does not consider your particular investment objectives or financial situation, and does not make personalized recommendations.

Any opinions expressed herein are subject to change without notice. Supporting documentation for any claims or statistical information is available upon request. The investment strategies mentioned here may not be suitable for everyone.

This tutorial will introduce you to the fundamentals of stock options. The concepts can be broadly applied to assets other than stocks, too. Many options traders have years of experience, so don't expect to be an expert immediately after reading this tutorial. Call and Put Options Options Basics: How Options Work Options Basics: Types of Options Options Basics: Options Spreads Options Basics: Options Risks Options Basics: The best way to think about options is this: This is why, when trading options with a broker, you usually see a disclaimer similar to the following: Trading options is not easy and should only be done under the guidance of a professional.

Learn about trading stock options, including some basic options trading terminology. Gain a thorough understanding of factors that affect price and how it is essential in options trading.

Options Trading 101

Introduction to Options Trading. Dayana Yochim. They can be web- or software-based, desktop or online only, have separate platforms for basic and advanced trading, offer full or partial mobile. Options are one of the most popular derivatives that are traded in stock market. In this post, I will share my personal experience with Option trading. I will also help you understand the characteristics that are important for any beginner to learn before starting with Option trading. Options Basics: Introduction; Options Basics: Call and Puts Options when trading options with a broker, you usually see a disclaimer similar to the following: Connect With Investopedia.