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Trading Strategy
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Option Trading
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What are options?
Strike price, expiration date, and the underlying security are all characteristics of options, in the sense of being aspects of the option contract itself or specifications thereof. For the trader, there are other characteristics that are relevant. These concern the way options behave in trading: how they respond to volatility, price change, and time.
Options Education : Opinion versus Fact!
One of the great appeals to Options trading is that there are so many possibilities and trading strategies that can be used to manage risk. However, most services when promoting options like to demonstrate the tremendous REWARDS that are achievable. Although tremendous gain is possible, options are considered speculative instruments and potentially very risky in untrained hands. Since an Option gives the owner the right to buy or sell something for a specific period of time the OPTION is considered to be a deteriorating asset. Since all options have an expiration date, if all things are considered equal, the closer you get to that expiration date the less that the option will be worth.
Option Spread Trading
Spread trading is defined as opening a position by buying and selling the same type of option (ie. Call or Put) at the same time. For example, if you buy a call option for stock XYZ, and sell another call option for XYZ, you are in fact spread trading.
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