Options Trading for Beginners & Dummies
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About this ebook
Options trading have become an appealing option for many investors today, particularly as trading volume continues to rise and investors have decided to try new types of investments. If you want to make the most of this type of investment and are interested in trying options in lieu of or in addition to other types of investments, you'll benefit from gaining a full understanding of options and how they work.
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Reviews for Options Trading for Beginners & Dummies
3 ratings2 reviews
- Rating: 5 out of 5 stars5/5easy to understand and well explained.Good book for a beginner.
- Rating: 5 out of 5 stars5/5Very well written book. Great examples and definitions for beginners.
Book preview
Options Trading for Beginners & Dummies - Giovanni Rigters
INTRODUCTION
Welcome to Options Trading for Beginners & Dummies. In this book, we’ll introduce you to the exciting and challenging world of options. While options involve higher risk-taking than normal stock market investing, they are also more interesting and exciting, with a huge potential upside.
Options are a less well-known aspect of the stock market that traders can use to earn profits. The most amazing thing about options is you can start getting in on the action by only investing a small sum of money, even $100 or less! And each options contract gives you the right to control 100 shares of stock.
Options sound complicated, but they are actually pretty simple. They were designed to give people the option to buy or sell off stock at a pre-determined, specific price. Options are contracts, and like all other contracts, they come with an expiration date. But the best thing about options is they trade on their own market – just like shares of stock. And when the stock prices change, so does the price of the options contracts.
People trade options to profit off price moves on the stock market. That is, traders use the method of buying low and selling high to make profits from trades. You can buy options that expire at various dates in the future. Most of the action is centered on options that expire within a week to a month, but some options expire several weeks, months, and even years into the future. As we’ll see, the expiration date for the option is something you’ll need to pay close attention to.
But for small investors, one of the best things about options is the high return on investment or ROI. As we will see throughout the book, a trader can earn far higher ROI trading options compared to stocks! So, options trading is more accessible that day or swing trading stocks because of the low capital amounts required to get started, and you’ll earn a much higher ROI!
Well, I hope you are as excited about trading options as I am. Let's go ahead and get started!
Note: The information provided in this book is for educational purposes only, and does not constitute financial, tax, or legal advice. Past performance is no guarantee of future success. If you are in doubt about your trades, please consult a professional financial advisor.
CHAPTER 1: OPTIONS TRADING BASICS
An option is a contract based on 100 underlying shares of stock. Each contract fixes the price of the stock at a value called the strike price. Options also expire, they come with an expiration date which is sometimes referred to as the expiry.
There are two types of options. These are known as call options and put options. A call option gives the buyer the right to buy 100 shares of stock at the strike price. The contract is called an option
because buying the shares is optional