What Are Stock Options?

If you are interested in the exciting world of the stock market, you should be familiar with stock options. This term refers to a limited time contract between buyer and seller. The contract stipulates that the buyer can purchase the specified stock but is not required to, and that the seller must sell the specified stock at the agreed upon price. Of course once the contract expires this agreement is no longer valid. Options trading is nothing new, it is estimated that the first form of options trading took place around 7 BC in Greece, but instead of stocks the commodity was olives.

There are particular ways to define options trading. One is the date of expiration. This is when the contract ends. The option is based on an underlying asset. Then there is the exercise price, also called the strike price. This is the amount for which the asset is purchased or sold if the holder of the option chooses to do so. There is a difference between options in the United States and Europe. In the United States, the buying or selling can happen at any time period during the contract period. In Europe, the option can only be exercised on the date of expiration.

You may hear the term ATM tossed around. This is not an automatic teller machine, at least not in the world of stock trading. This acronym stands for at-the-money, which means the strike price is very close or identical to the current price. Then there is the acronym OTM, or out-of-the-money. This means the price is too far from the strike amount therefore there is no good reason for the options holder to take action on the contract. Finally an ITM, which means in-the-money, is a position that is profitable for the contract holder.

As you can see, stock options allow traders the potential of profit without a lot of risk. Even those new to stock trading can delve into options trading with a little knowledge. There are a plethora of books, newspapers, magazines and even educational courses which can teach even the most clueless individual how to trade. Before you do decide to invest money, make sure you are well schooled in trading. Also, it is a good rule of thumb to never use money you can't afford to lose. That way if you lose money it may be disappointing but not devastating.






 

 

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Options Trading News:

 

A Different Approach to Apple Using Options - Minyanville.com

The Market Oracle
A Different Approach to Apple Using Options
Minyanville.com
By JW Jones May 18, 2012 3:25 pm Apple stock is expensive and volatile, but structured option trades can help investors control risk and make efficient use of capital. Apple (AAPL) is currently one of the most actively traded stocks.
A Different Approach to Trading Apple Stock Using OptionsThe Market Oracle
An Options Trade For AppleSeeking Alpha

all 7 news articles »
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Examining Options & Block Trading Activity for RadioShack - AVAFIN

Examining Options & Block Trading Activity for RadioShack
AVAFIN
The bought/sold ratio for shares of RadioShack is 5.65, representing a positive net cash flow of $645223 into the stock. A deeper look into options trading also reveals that traders hedged their positions with options where 6536 put and 3244 call .

and more »
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CBOE to start listing Facebook option contracts this month - Los Angeles Times

CBOE to start listing Facebook option contracts this month
Los Angeles Times
By Chad Terhune, Los Angeles Times Facebook shares fell flat on their Nasdaq debut, but another trading venue for the stock will open later this month. The Chicago Board Options Exchange will start listing option contracts on the Menlo Park company May .
Another option for Facebook tradingSacramento Bee

all 26 news articles »
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Facebook Options Trading Can Begin May 29 - AllFacebook
Assuming the Facebook initial public offering launches Friday, as planned, Tuesday, May 29, would be the first day that options trading could begin on the social network's stock...


Floor Traders Upset Over CME Group's Changes - Huffington Post

Futures Magazine
Floor Traders Upset Over CME Group's Changes
Huffington Post
Amid pressure from the nation's largest grain association and "significant feedback," the CME Group Inc. backed off a proposed plan to extend trading hours in grain futures and options, but only by one hour. The amendment, which still has to be .
After protest, CME grains set for nearly non-stop tradeReuters
New for Traders: Week ending May 18Futures Magazine
CME Group to Start Expanded CBOT Grain and Oilseed Trading Hours May 20MarketWatch (press release)
Fox Business -Brevard Times
all 101 news articles »
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A Different Approach to Apple Using Options - Options Trading Signals
Apple (AAPL) is one of the most actively traded stocks currently. For the trader who trades only stock, there are two major difficulties in executing trades in this stock: 1. It is breathtakingly expensive. 2. It exhibits periods of neck ...


Options Players Bet On More Pain For Caterpillar
Nearer term plays in the fresh weekly options issued on the stock were largely bearish in the first half of the session, with traders buying puts at the May 25 '12 $80, $82.5 and $85 strikes that increase in value if CAT extends losses next week...


 

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