| The amount of stock options being traded in | | | | components to it: |
| America is exploding! This is great news because | | | | 1. The underlying stock |
| there is far greater liquidity in the options market | | | | The stock that the option is traded on (ABC |
| and many more money making opportunities for | | | | Company in the example above). |
| individual traders just like you. During the next ten | | | | 2. The exercise date |
| weeks I will be writing articles on how you can | | | | The predetermined date, before which, you can |
| profit from one of the fastest growing areas of | | | | use or exercise your option. Options always |
| financial investment available to individuals. | | | | expire on the third Friday of each month |
| In case you don't know what a stock option is let | | | | (November 16th in the example above). |
| me explain. Simply, a stock option gives you the | | | | 3. The strike price |
| right to control the ownership of a stock for a | | | | The predetermined price you can buy the stock |
| fraction of the price to buy it. There are two | | | | for ($50 in the example above). 4. The type of |
| types of options; the first is a Call Option which is | | | | option |
| the option to buy a share of a certain company | | | | Either a Call or a Put option. |
| for a predetermined price before a predetermined | | | | Here is the first key to successful stock options |
| date. The second is a Put Option, which is the | | | | investing. It is very simple: practice, practice, |
| option to sell a share of a certain company for a | | | | practice. I cannot stress enough how important |
| predetermined price before a predetermined date. | | | | practice will be to your success as a stock |
| For example if you purchased 100 shares in ABC | | | | options trader. Trading options is an inherently |
| Company that traded at $50 each, you would | | | | risky endeavor, however by learning the keys to |
| have to invest $5000 to buy those shares. | | | | successful stock options trading it is possible to |
| However you could buy 100 Call Options priced at | | | | mitigate this risk and maximize your gains. Options |
| $5 each, with the right to buy ABC Company at | | | | are a zero sum game, which means for every |
| $50 any time up to a date in the future (say | | | | winner there has to be a loser. I'm sure you want |
| November 16th) and you would control the same | | | | to be a winner and not a loser, right? So you |
| amount of shares for only $500. If the price of | | | | must take the time to learn the fundamental |
| ABC Company goes up by $5 and you owned | | | | theories of options trading and practice the |
| the shares you would have made $500 or 10% | | | | strategies behind options trading before you risk |
| on your $5000 investment, however because the | | | | any of your hard earned capital in the market. It |
| Call Options give you the right to buy the shares | | | | is only when you are winning seven out of ten |
| at $50 and they are now worth $55 the price of | | | | trades on paper and you are confident in your |
| the options would go up $5 as well and you would | | | | trading plan and money management techniques |
| have made $500 or 100% on your $500 | | | | that you should trade in the market for real. By |
| investment. This example demonstrates the great | | | | the time you have finished reading these articles |
| leverage stock options provide. | | | | you will have a plan and know just what those |
| Call Options are used when you expect the price | | | | money management techniques are. Look out for |
| of a stock to rise, if you expect the price of a | | | | Key #2 coming soon. |
| stock to fall you can buy Put Options, which as | | | | US Government required disclaimer: Options |
| mentioned before, give you the right to sell a | | | | involve risk and are not suitable for all investors. |
| stock at a predetermined price. So in the example | | | | Prior to buying or selling an option, a person must |
| above if the price of ABC shares fell to $45 and | | | | receive a copy of the Characteristics and Risks of |
| we had bought Put Options giving us the right to | | | | Standardized Options. Copies of this document |
| sell ABC at $50, the Put Options would be worth | | | | may be obtained from your broker, from any |
| money because you could buy ABC shares in the | | | | exchange on which options are traded or by |
| market for a cheaper price than you could sell | | | | contacting The Options Clearing Corporation, One |
| them for. Wonderful isn't it, you can make money | | | | North Wacker Dr., Suite 500 Chicago, IL 60606 |
| if the stock market is rising or falling! | | | | (1-800-678-4667). |
| To summarize a stock option has four | | | | |