Options Trading 101

Options Trading 101

Chances are you’re reading this book because you’re brand new to options. You’ve heard about them but can’t really explain to someone else what they are. You’d like to start trading them but you have lots of questions and nobody seems to have the answers you’re looking for. This book is for you!

At Options University, we believe there is only one way to teach; you must start by learning the most fundamental concepts. While it is possible to provide a quick overview and send you on your way with a false sense of confidence, we know that will only be detrimental in the long run. That is the “ready, fire, aim” approach often used by most books and instructors. Instead, we make sure you truly understand the essence of an option and what makes it different from stock. Once we examine these core competencies, we will then introduce you to some basic strategies that you can use immediately. But don’t underestimate these strategies just because they’re labeled as basic. On the contrary, the basic strategies are what often pack the most punch and are most widely used – even by professional traders. Advanced strategies, even though they appear far more complex, are just moderate extensions of the basics. If you understand the concepts presented in this book, you will make a smooth transition into advanced strategies should you choose to continue further with options trading. Most important, you will have enough knowledge to confidently use the most powerful trading tool ever to hit the financial markets.

Before we get started, let’s clear up the one unfair misconception that you have probably heard: Avoid options because they are too risky.

As you will find out, options were created to manage the risks and rewards of stock investing, which is certainly a good feature. However, if you talk to investors or traders about options you will find there are a myriad of opinions. To some investors, the word “options” suggests feelings of risk, gambling, speculation, and reckless investing. To others, options mean hedging your bet, insurance, and good money management. How can the same asset cause two opposing views? The reason is that both can be correct. It depends on how you’re using the options. Credit cards are a good analogy. One person can use them to spend excessively and end up in bankruptcy while another uses them to pay for an emergency car repair after being stranded on a deserted road. Are credit cards good or bad? Just as with options, the answer depends on how they are used and managed. Be wary of people who tell you to not waste your time with options because they are too risky, because we can show you strategies that completely eliminate risk. What’s important is that you are able to separate which feature of an option is a benefit for you and which is a risk for you. A risk to someone else may be a benefit for you, and the options market will let you earn money for assuming that risk.

After reading this book, you will know which strategies are right for you and which are too risky. It all depends on your goals and risk tolerances. We want to show you how options can be used to enhance and strengthen your current investment style.

Those who choose to not learn about options may be overlooking the most important and powerful investment tool available. It is our experience that the people most skeptical of options are the ones who often see the most benefits. We believe, by the end of this book, you will find at least one new strategy that appeals to you, and that means you’ll be a little bit better than you are at this point. And that’s how good investors eventually become great – by continually getting a little bit better. At least take the time to understand options; you can always decide to not use them. But our guess is that this book will only open the doors to a new and exciting investment world you never thought possible. So let’s begin our journey and answer a frequently asked question: Why is there an options market?

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