Introduction to Stock Options Trading

Posted by admin in Stock Market on 04 28th, 2009 | no responses

If you are a stock market investor you would know that buying a stock for a particular company entitles you as the investor partial ownership in the corporate entity that issues the shares. To put it another way you are purchasing an “equity” participation in the company.

You will find that the majority of the US stocks traded and listed in the stock exchanges are known as equity securities. Trading in stocks is straightforward. You make your selection, buy the stock at the listed price and then sell it if the value increases if you choose to do so. You can also earn dividends from the company while you hold a stock.

This article is about helping you with Learning Options Trading. So what are they? To make it simple, an option is really just a contract.

The difference with a stock and a stock option contract is that the purchaser of a stock option is that they do not take ownership of anything. An option contract gives the right to its owner to buy or sell the underlying financial instrument on which it is based.

The type of options most commonly referred to in financial circles is known as “equity options”. You may be interested to know there are different expiration dates for the options. The “regular” options can have expiration dates up to 9 months from the time of issue. There are also options known as LEAPS. They can have expirations of upwards of three years.

Now lets dive into a bit more detail about an option contract. Equity options just like stock are classified as securities. To get more specific equity options are called “derivative” securities. If you don’t know what that means it is simply that the value is in part based on, or comes from, the value of the particular underlying stocks.

As equity options are securities they can be traded on exchanges within the USA that list equity options. If you are looking to trade equity options if should come as some comfort to you that exchange listed equity options are overseen by the Security and Exchange Commission (SEC).

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