Investing in Stock Options - What You Need to Know About Options

Investing in Stock Options - What You Need to Know About Options
Stock options are important investments to consider when
you are building wealth in the stock market. The most basic
definition for a stock option is a contract that allows an
investor to purchase or sell a specified stock at a
specified price, within a specified amount of time.
Employers commonly give stock options as asset based
compensation, and investors buy and sell options on the
stock market to gain capital. Every stock option is
characterized by the name of the stock, the strike price,
the option contract expiration date and the price that was
paid for the contract.

Basic Terms:

Call Options- these give the owner the right to buy a stock
at a specified price, within a specified amount of time.
Investors who buy call options are hoping that the stock
value increases before the option expiration date.

Put Options- these give the owner the right to sell a stock
at a specified price, within a specified amount of time.
Investors who buy put options are hoping that the stock
value decreases before the option expiration date.

Strike Price- the price that the option can be bought or
sold at.

Options Investor Types: Buyers of Call Options, Sellers of
Call Options, Buyers of Put Options, Sellers of Put Options

There is an important difference between the investors who
buy and investors who sell options. Investors who buy puts
and calls have the choice to exercise their option
contracts. Investors who sell puts or calls have the
obligation to exercise their options contracts.

The price of a stock option must go above the strike price
for investors to exercise and make a profit on call options
and the price must go below the strike price for investors
to make a profit on put options. When options fall into
these ranges, they are called "in the money".

Options can be used for a wide range of trading scenarios,
such as:

-Reducing your risk from stock ownership

-Generating an income from stock you already hold

-Speculative trading in an up or down market

-Multi leg option strategies to take advantage of specific
market action

-Volatility based strategies to take advantage of market
volatility even if you do not know which way the market
will go.

While is it true that options take some time to understand
and to master, most people agree that once they have spent
the time to properly educate themselves about options, that
they are much better off for doing so.

Many stock traders I know, once learning about options have
never traded a single stock again. They can make more
money, and take less risk by using a properly structured
option strategy.

So if anyone is still on the fence, it's definitely worth
taking the time to learn about options.

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To learn more about how you can harness the power of
options, download our free ebook and online video at
http://www.optiontradersjournal.com