Options Trading for Beginners

A trader's portfolio can be filled with many different kinds of investment instruments which include stocks, bonds, mutual funds etc. These are probably some of the more famous vehicles, but in this mini-course, we are going to cover a slightly more sophisticated kind of investment - options. The first thing you need to understand is that options, like all other financial vehicles, involves risk and is probably not suitable to everybody. In fact, options trading is probably one of the riskier investments out there. You will understand why in a minute. The advantage of trading options really lies in the fact that it gives the trader a lot of freedom to choose how he wants to trade. A trader can be extremely speculative or conservative depending on his trading personality. The main aim of this series of mini-course is to equip you with the fundamental knowledge of what options trading is, so that you are able to navigate the market independently and confidently. So, what are options? Options are essentially contracts that gives the owner the right to buy or sell an asset at a fixed price (also known as 'strike price') for a defined period of time. This is different from stock trading where the investor buy and sell the actual asset itself. However, an option is still a security. The buyer of the contract has the right to purchase the underlying asset, but is not obligated to do so. On the other hand, the seller of the contract is obligated to sell, if the buyer so wishes to buy. Because of its speculative nature, an option is also known as a form of derivative.