Powerful Options Basics Lessons Improving your trading in 180 days.

An option is a traded security that is a derivative product.

By derivative product we mean that it is a product whose value is based upon or derived from the price of something else. Since we are talking about stocks, a stock option is based upon, among other things, the price of the underlying stock.

There are also options on other traded securities such as currencies, indexes and interest rates, but here we will limit our discussion to stock options, or options based on stocks.

A distinguishing factor of an option is that is a depreciating asset in the sense that it has a limited life, and has to be used before the date on which it expires. As time goes by, the option loses value as it moves closer to its expiration date

When we speak of options in terms of volume, we refer to contracts. Each stock option contract is equivalent to 100 shares of stock. When we talk about two contracts, we are talking about 200 shares, 10 contracts; we are talking about 1,000 shares, 75 contracts 7500 shares and so on.

NOTE: It is important to understand the dollar cost of options before actually trading them. When an option is quoted at $1.00 per contract, the investor must realize that the $1.00 represents a price of $1.00 per share, not per contract. Remember that each contract is worth 100 shares. This means that if you were to buy one option contract at a quoted price of $1.00, your total cost will be $100.00 (1 contract x $1.00 per share x 100 shares per contract). If you were to buy 10 contracts for $1.50 per contract, your total cost will be $1500.00. Use the formula below when calculating total dollar cost of the option.

Amount of Equivalent Amount of

Shares Option Contracts

100 1 200 2 1000 10 7500 75 15000 150 50000 500 100000 1000

Total Dollar Cost of Trade = Number of Contracts x Price per Contract x 100

Option contracts are literally a sales agreement between two parties. The two parties are the buyer (or holder) and the seller (or writer). When you buy an option contract you are considered to be long the option. When you sell an option contract, you are considered to be short the option. This, of course, is assuming you had no previous position in the said option.

In an option contract, although it seems as though the buyer and seller must be tied together, they are not. You see, the buyer doesn’t really buy from the seller and the seller doesn’t really sell to the buyer.

In reality, an organization called the OCC or options Clearing Corporation steps in between the two sides. The OCC buys from the seller and sells to the buyer. This makes the OCC neutral, and it allows both the buyer and the seller to trade out of a position without involving the other party.

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
If You Would Like to Learn More About The Options Basics
Responsibilities Then Discover How to Protect Your Investments
With the Leveraged Power of Options & Learn How to Trade Options
Like the Pros..

Click Here --> http://www.options-university.org
-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

---

Stock Market Money Management Skills

Let's start by saying: You can't be afraid to take... Read More

Issuing Warrants to Investors

When raising capital for a business venture, warrants are a... Read More

What My Horse Had For Breakfast

Let's see, he had some oats, fresh alfalfa and his... Read More

Before You Start Investing

There maybe several reasons why you to want to invest... Read More

25 Ways to Find Companies to Buy

When you start your program to purchase your "ideal" company,... Read More

Sitcom Investing

A fickle stock market encourages good-humored mockery.Recently, as I watched... Read More

Investing In Sons Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 to start... Read More

Planning for Retirement

Almost without exception, people don't start planning for their retirement... Read More

Easily Finding A Good Stock

There is a tremendous amount of software, complicated high priced... Read More

Stock Market Retirement Investment Plan

For a successful retirement investment plan to work in the... Read More

Trading Tips No 4: Technical Analysis The Holy Grail Syndrome

Everyone knows that the Holy Grail of investing and trading... Read More

Find a Methodology and Minimize Investment Madness

There are many reasons to be investing these days, and... Read More

Rolling your 401k: Contributory IRA vs. Rollover IRA

In an ideal world you would start your working career... Read More

Forex Trading Best Practices

FOREX, the term for the FOReign EXchange market, is an... Read More

Success Trading: More Basic Terminology for New Traders

One important aspect of trading the markets is to understand... Read More

Asset Location ? Increase Investing Returns & Reduce Your Taxes

Location ? Once the holy grail only for real estate... Read More

It?s Never too Early to Start Investing!

Remember the old saying, "never too late to start"? Well,... Read More

Mutual Fund Selection Made Simple By Indexing!

Non-indexed mutual funds try to keep it secret that actively... Read More

The Dreaded Direct Question

(Please have a glass of water within reach before reading... Read More

Guru Focused: Robert Olstein?s Short Sells

While it is rather rare that value gurus sell stocks... Read More

A Secret Revealed: Why Most (Day) Traders Fail

The following perspective on (day) trading comes from my many... Read More

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image... Read More

June 2005: Weather Forecasts for Weather Traders

If Johannes Kepler, the renowned 17th century astronomer and discoverer... Read More

Retirement ? Its Sooner Than You Think!! (Honestly)

Many people hear "retirement" and think- what? 401K? Roth vs.... Read More

Top Ten Investment Mistakes

1. Lacking an investment plan a/k/a/ "Don't take a trip... Read More

Financial Planners

"Financial planners are like dentists: they may occasionally inflict pain,... Read More

Trading Tips No 7: Developing a Casino Mentality for the Day Trader

I submit that the successful day trader would profit well... Read More

Is Your Mutual Fund the Right One for You?

Mutual Funds are considered to be one of the best... Read More

Looking For a Safe Investment? Try a Certificate of Deposit

If you are looking for a safe investment and you... Read More

Chinas Inscrutable Currency Strategy

Purpose: Expose Opportunities for Smart InvestorsThe move by China's central... Read More

Planning Starts with the Basics

When developing a plan for your finances, the toughest question... Read More

The Perfect Economy?

The U.S. economic data reported this week showed strong output... Read More

The Switzerland of Asia Shines

In many respects, Singapore is the Switzerland of Asia.Begun in... Read More