What exactly is options trading?

[jasno999]

I do nto know anyhting about options. I am clueless as to what they are and how they work. I was hoping somebody could explain this all to me.

[TonyM]

The Hitchiker's guide to the galaxy of all things market related (www.investopedia.com)

[Albert0373]

Did you look down a few threads and see the already present Options thread?

http://www.onlinetradersforum.com/showthread.php?t=11859

[aiki14]

I do nto know anyhting about options. I am clueless as to what they are and how they work. I was hoping somebody could explain this all to me.

I am clueless about Loop Quantum Gravity, you explain that to me and I'll return the favor.
Seriously, you're asking for a huge amount of information to be spoon fed to you by someone you don't know. Buy a book or two. If you can't afford to pay for an options education you're not ready to trade them anyway. Good Luck.

[theticktrader]

check out www.optionetics.com I took that class way back in the early 90's when it first opened.. Very good material. At least it was way back then :)

DM

[madcowdisease]

Did you look down a few threads and see the already present Options thread?

http://www.onlinetradersforum.com/showthread.php?t=11859

Or this one:

http://www.onlinetradersforum.com/showthread.php?t=14400

[theticktrader]

Here is a quick basic:
When you buy a 100 shares of Dell, you own part of the company.

When you buy an option: you are buying the RIGHT not the OBLIGATION to purchase the shares at a certain price, by a certain date:

Let me give you a quick example:

Lets say you have a house for sale and you am asking 100 Thousand dollars. I am interested in buying, but I am speculating that in the next 6 months, the property values are going to increase.

I come to you and say: Hi, I would like to buy your house but I would like to purchase the OPTION (the right) to buy the house. You say: Umm. Ok, I guess, what do you mean:

I say: I'll give you 5 thousand dollars CASH. The cash is yours to keep forever- BUT you MUST (obligated) to sell me the house for 100K between now and say, 6 months from now. If I dont buy the house you keep the 5K. If I do buy the house you keep the 5K plus the 100K I give you for it.

4 months goes by and properties increase 20 percent in value. Your house will now sell for 120K. You cant sell it!! You have a CONTRACT where YOU are OBLIGATED to sell me the house for 100K.

I give you the 100K and buy your house. You made the 100K you wanted, and the 5K for WRITING the option.

I turn around and sell the house for 120K and profit 15K.

Does that make sense?? I just came up with that spur of the moment. PM me if you want to learn more..

David

[thetyphoon]

David that was a great explanation for options. Those options books can be a chore to read.

[theticktrader]

Thanks! but you should probably still read the books :)

David