Options trading basics overview. Before we move on to Module 2 let's do a quick recap of Module 1.
Definition of Stock Options: If you buy or own a stock option contract it gives you the right, but not the obligation, to buy or sell shares of a stock at a set price on or before a give date (time period).
After this date, your contract expires and your option ceases to exist.
Derivatives are another name used for stock options.
Stock Options are contracts; they don't represent ownership in anything. They are merely contracts that grant you certain rights.
Options trading (the buying side) can be defined as buying contracts that you think will increase in value and once they increase in value you will sell them at a higher price and pocket the difference.
1 stock option contract = 100 shares of a company's stock. So when you buy 1 contract you are buying the right to, buy or sell, 100 shares of that stock.
The "Put option" gives its buyer the right, but not the obligation, to "sell" shares of a stock at a specified price on or before a given date.
The "Call option" gives its buyer the right, but not the obligation, to "buy" shares of a stock at a specified price on or before a given date.
For trading purposes, Puts and Calls expire the 3rd Friday of the month of expiration. For example if I bought a December option, it will cease to exist (expire worthless) after the 3rd Friday in December.
That's it for Module 1: Options Trading Basics. You can proceed to Module 2: stock option valuation whenever you feel you are ready.
I don't know what has brought you to my page. Maybe you are interested in options to help you reduce the risk of your other stock market holdings.
Maybe you are looking for a way to generate a little additional income for retirement. Or maybe you've just heard about options, you're not sure what they are, and you want a simple step-by-step guide to understanding them and getting started with them.
I have no idea if options are even right for you, but I do promise to show you what has worked for me and the exact steps I've taken to use them to earn additional income, protect my investments, and to experience freedom in my life.
If you want to learn more, I invite you to download a FREE video case study on how to trade options like Warren Buffett.
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Wealth Building Resources
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Options Trading Made Simple Book (Kindle book)
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Free Options Course Learning Modules
Module 1: Option Basics
Module 2: Option Value
Module 3: Basic Strategies
Module 4: Stock Charts
Module 5: Technical Indicators
Module 6: The 7-step process I use to trade stock options