What Are Options? A Brief Introduction to Leveraged Investments
What exactly are options? To a beginner, options often sound intimidating and complex as they are full of rules and systems that stocks don't have.
Some people are even inclined to believe that options are somehow riskier or more volatile than stocks, but nothing could be further from the truth.
To describe options versus stock in regards to risk would be a lot like comparing flying a plane to driving a car.
Statistically you are more likely to die in a car crash than a plane ride, yet if you handed any non pilot the keys to a Boeing 747, they wouldn't feel very safe at all.
Options are the same way because they give you more control and the opportunity to make money in any kind of market.
This makes it a lot safer than stocks, yet it's very easy to lose your money if you aren't properly trained on how to manage them, similar to how easy it might be for a non pilot to crash an aircraft.
To sum it up, options are a reserve on a price.
When you buy an option, you are buying the right but not the obligation to buy or sell an underlying asset up until a predetermined expiration date at the third Friday of the expiration month.
So there are four things that define an option: 1.
Call or Put A call option reserves the right to buy an underlying asset whereas a put reserves the right to sell.
Having the right to buy makes you long on the underlying because if the price goes up, your option will appreciate in value as you will have the right to buy it at a cheaper strike price than its current trading value.
A put option does the opposite and is a short option, and will allow you to sell an underlying that has depreciated in value at a higher price.
2.
Underlying Asset The underlying is whatever the option refers to.
The reason it is referred to as simply the underlying or the underlying asset is because options can be traded on stocks, ETFs or commodities.
The Trading Pro System focuses mainly on exchange traded funds and stocks as the underlying 3.
Strike Price The strike price refers to the price at which the underlying can be bought or sold.
This is important as an option will appreciate in value after the underlying has past this price, and is then referred to as being in the money.
Selling an option means you want the option to steer clear of the strike price whereas buying one means you hope it approaches it and surpasses it so you can generate a profit.
4.
Expiration Date All options expire on the third Friday of the expiration month for which they are purchased.
This is important to keep in mind as the closer to expiration an option approaches, the less time value it will have and the more intrinsic value it will have if it has gone into the money.
David Vallieres recommends that anyone learning his Trading Pro System takes the time to buy a book on options trading to learn the basics before moving into the course as he only spends a brief period of time working with the basic aspects of an option before moving right into his trading strategies.
If you are interested in trading options on a powerful system like his, I recommend checking out my blog at http://www.
tradingprosystemreview.
net for the details on how you can change your wealth and independence with options.
Some people are even inclined to believe that options are somehow riskier or more volatile than stocks, but nothing could be further from the truth.
To describe options versus stock in regards to risk would be a lot like comparing flying a plane to driving a car.
Statistically you are more likely to die in a car crash than a plane ride, yet if you handed any non pilot the keys to a Boeing 747, they wouldn't feel very safe at all.
Options are the same way because they give you more control and the opportunity to make money in any kind of market.
This makes it a lot safer than stocks, yet it's very easy to lose your money if you aren't properly trained on how to manage them, similar to how easy it might be for a non pilot to crash an aircraft.
To sum it up, options are a reserve on a price.
When you buy an option, you are buying the right but not the obligation to buy or sell an underlying asset up until a predetermined expiration date at the third Friday of the expiration month.
So there are four things that define an option: 1.
Call or Put A call option reserves the right to buy an underlying asset whereas a put reserves the right to sell.
Having the right to buy makes you long on the underlying because if the price goes up, your option will appreciate in value as you will have the right to buy it at a cheaper strike price than its current trading value.
A put option does the opposite and is a short option, and will allow you to sell an underlying that has depreciated in value at a higher price.
2.
Underlying Asset The underlying is whatever the option refers to.
The reason it is referred to as simply the underlying or the underlying asset is because options can be traded on stocks, ETFs or commodities.
The Trading Pro System focuses mainly on exchange traded funds and stocks as the underlying 3.
Strike Price The strike price refers to the price at which the underlying can be bought or sold.
This is important as an option will appreciate in value after the underlying has past this price, and is then referred to as being in the money.
Selling an option means you want the option to steer clear of the strike price whereas buying one means you hope it approaches it and surpasses it so you can generate a profit.
4.
Expiration Date All options expire on the third Friday of the expiration month for which they are purchased.
This is important to keep in mind as the closer to expiration an option approaches, the less time value it will have and the more intrinsic value it will have if it has gone into the money.
David Vallieres recommends that anyone learning his Trading Pro System takes the time to buy a book on options trading to learn the basics before moving into the course as he only spends a brief period of time working with the basic aspects of an option before moving right into his trading strategies.
If you are interested in trading options on a powerful system like his, I recommend checking out my blog at http://www.
tradingprosystemreview.
net for the details on how you can change your wealth and independence with options.
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