Part 1 Ride The Big Moves Introduction to Options Trading
Options are one of the most versatile financial instruments in modern markets. Unlike stocks, where you directly buy or sell ownership in a company, options give you the right but not the obligation to buy (Call Option) or sell (Put Option) an underlying asset at a predetermined price within a specific period.
What makes options special is their flexibility. They allow traders to speculate, hedge, or generate income depending on market conditions. This versatility leads to the creation of numerous option trading strategies — each designed to balance risk and reward differently.
Understanding these strategies is crucial because trading options blindly can lead to substantial losses. Proper strategies help traders make calculated decisions, limit risk exposure, and maximize potential returns.
Basic Concepts in Options
Before diving into strategies, let’s clarify some key terms:
Call Option: Gives the holder the right (not obligation) to buy an asset at a specific strike price before expiry.
Put Option: Gives the holder the right (not obligation) to sell an asset at a specific strike price before expiry.
Strike Price: The pre-agreed price at which the option can be exercised.
Premium: The price paid to buy the option contract.
Expiry Date: The last date when the option can be exercised.
In-the-Money (ITM): When exercising the option is profitable.
Out-of-the-Money (OTM): When exercising the option is not profitable.
At-the-Money (ATM): When the strike price is equal to the current market price.
Options strategies are built by combining calls, puts, and underlying assets in different proportions.
