The Straddle Option: Options Trading 101

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Take a moment to learn the basics of options trading. Even if you are familiar with this material, it is a good idea to review abcs option volatility trading strategies book. There are only two types of options - calls and puts. Calls and Puts form the basic building blocks of all variations of option trading.

One option unit is equivalent to units of the underlying stock. Every trade is abcs option volatility trading strategies book using only calls, only puts, or a combination of the two. If you bought the following: In this case, the option expires worthless.

If the price increases, sell the call before expiration to take your profits, or exercise the call to buy the stock at a discount if the abcs option volatility trading strategies book of the stock has moved above the strike price i. Only buy calls when you have thoroughly learned the principles of swing trading.

If the price of the stock goes above the strike price, you will be obliged to sell the stock at the strike price. If the price of the stock stays below the strike price until the option has expired, you keep the stock and may sell another abcs option volatility trading strategies book. Sell calls only when you actually own units or more of the stock, and are reasonably certain that the stock will not move above the strike price see Trend Analysis. Buying Puts is the equivalent of short- selling stocks.

A put option for ABC stock may look like this:. The option would expire worthless. If the price decreases resulting in an increase in the price of the putsell the put before expiration to take your profits.

Buy puts only when you have thoroughly learned the principles of swing trading SELL a put if you are certain that you want to OWN the stock. You can sell a put for a strike price lower than the price of the stock. If the price of the stock is lower than the strike price ITMyou will be obliged to buy the stock at the strike price, thus making a potential loss.

Sell puts only when you actually want to own units or more of the stock, and are wanting to buy the stock at a discount. Or sell puts when you are reasonably certain that the stock will not move below the strike price see Trend Analysis. Options can be traded in various combinations, with fascinating names that are intimidating to many people, such as Credits and Debit Spreads, Ratio Spreads, Iron Condor, Butterfly etc. On this site, I mainly focus on Credit Spreads, because they are easy, cheap from a paying broker fees point of viewprofitable, safe, risk averse and fun.

You can learn all that here. Move on to discover how options are valued. Review different trading strategies and how they relate to option trading. Learn Option Trading - On this page learn the basic building blocks of options trading.

Get to understand calls and puts, and how they are traded. It is a little tricky, but you need to know the differences between the types of options, and their related obligations rights. Many people get bogged down with this info, especially when dealing with option combinations like credit spreads, so print your self out a cribsheet!

Needing to learn more? The Options Industry Council is a collaborative effort by several brokers, and provide lots of detail information and tutorials. Here is the link: On this site, my focus is on trading - I favour quick in, quick out, using a simple strategy. It is not so much investing as it is making your money actively work hard for you. This should be one portion of your wealth building strategy, but not the whole - you need to think broader, abcs option volatility trading strategies book use multiple strategies.

You might want to look at this great introduction to option trading strategies for long term investorssuch as Leveraged Investing, for some alternative approaches. Building Blocks There are only two types of options - calls and puts. Every call or put must have a seller and a buyer. A call option for ABC stock may look like this: Sell abcs option volatility trading strategies book only when you actually own units or more of the stock, and are reasonably certain that the stock will not move above the strike price see Trend Analysis PUTS A PUT is a contract that gives the BUYER the right to sell the stock at the strike price upon expiration.

A put option for ABC stock may look like this: Or sell puts when you are reasonably certain that the stock will not move below the strike price see Trend Analysis Keep it Simple: But first, get your head around Option Pricinga concept you cannot afford to not learn in order abcs option volatility trading strategies book be successful at option trading. Articles for Newbies What is Option Trading? Most Profitable Options Strategy. Selling Options Selling Options.

Buying Options Buying Options. Volatility Trading Strategies Volatility Strategies. How to Trade a Straddle. How to Abcs option volatility trading strategies book a Strangle. How to Set Up Zulutrade. Product Reviews Trading Pro System.

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