There is a learning curve involved before a trader starts trading options. To avoid the risk of losing huge amount of money one should try and learn the fundamentals and then trade options. Below is some of the important information for Option Trading beginners:

What are Options?

Option is a contract between a buyer and a seller which gives the buyer of the contract a right to either buy or sell the underlying asset at a particular price before the contract end date. However, in case of options, buyer does not have an obligation to exercise his/her rights.

Types of Options

There are two types of Options Contract which are as mentioned below.

a.) Call Option: Call Option is a contract where buyer of the contract is bullish about the price of underlying asset and has a right to buy underlying asset at predefined strike price. If the current market price of the underlying asset is above the strike price it’s in trader’s interest to exercise his right and buy the lot of underlying asset. And if the current market price of the asset is below the strike price he/she can forget about the premium paid for the contract and buy the underlying asset from the open market.

b.) Put Option: Put Option is a contract where buyer of the contract is bearish about the price of underlying asset and has a right to sell the underlying asset at a predefined strike price. If the current market price of the underlying asset is below the strike price trader can exercise his right and sell the lot of underlying asset. And if the current market price of the asset is above strike price he/she can forget about the premium paid for the contract and sell the underlying asset in open market.

Benefits of Options Trading

One of the most important advantage of using Options as a financial instrument is the leverage it has to offer. If you want to buy options contract you need to shed out 10% of investment then the investment required for the same number of underlying asset from the market. By paying 10% of total investment as premium one can manage the whole lot of underlying asset with options contract.

A trader should learn the basics with the help of Options Trading Tutorial before he/she starts investing actual money into the market.

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