How do I Learn Options Trading Basics?

Dana DeCecco

In order to learn options trading basics, the trader would access the options educational websites created specifically for this purpose. Options are complex derivatives. Before entering this speculative and risky market, the novice options trader must be informed and educated.

A stock option gives the holder the right to buy (call) or sell (put) a stock at an agreed-upon price some time in the future.
A stock option gives the holder the right to buy (call) or sell (put) a stock at an agreed-upon price some time in the future.

A good place to start would be looking for online sources of investment information. Some websites offer a very brief outlines about options trading basics that can help guide you toward further education on the subject. Other websites specialize in every aspect of options education and training. Online classes, webcasts and live seminars are sometimes available at no cost to the trader. Some websites have virtual trading systems with which a trader can sharpen his or her option trading skills before risking capital.

Options trading basics are only the beginning on the more comprehensive websites. The trader can move on to advanced options strategies. Many advanced strategies are explained in detail on these websites, complete with graphs and charts.

You can learn what options are, what they are used for and how they work. The importance of education before entering the options market cannot be overstated. These types of sites can be an excellent resource for the novice trader.

Education in options trading basics is also available from a number of online options brokers. All of these educational resources are available at no cost to the trader. Many books have been written on this subject and can be purchased online from option brokers and book retailers.

In the United States, options brokers typically are required to supply a trader with a publication called Characteristics and Risks of Standardized Options. This is required reading before being approved for options trading. The trader will be assigned a level at which he or she is allowed to trade. This level will depend on options trading experience and the amount of risk capital invested.

Call and put options are available for trading. These options can be bought or sold. Selling an option is referred to as writing an option.

The trader should thoroughly understand the four basic option trades. All other complex option trades are combinations of these four trades. These trades are buying or writing calls and buying or writing puts. Buying options gives the trader rights, for which he or she pays a premium. Writing options obligates the trader, for which he or she is paid a premium.

Fully understanding these four basic option trades is the foundation of the options trader's arsenal. Options can be a useful addition to your trading skills. Take advantage of the free educational resources available online.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Forgot password?