OPTIONS TRADING: Simple strategies guide for Beginners to Options Trading

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There are some investors that are aware of the risks involved in trading options and because of this they decide to avoid options as investment vehicle. The simple fact is that it isn't for everyone; it's a relatively unique way to invest and there are certain pitfalls and downsides.

However, no form of investment is without its disadvantages and there are also plenty of reasons why trading options is a good idea. There are certainly many investors who do make very good money from it and it's perfectly possible for anyone to do so. If you are considering getting involved, then your decision should really be based on whether the advantages of trading options outweighs the risks involved in your view.

Options can provide flexibility for investors at every level and help them manage risk. To see if options trading has a place in your portfolio, here are the basics of what options are, why investors use them and how to get started.
If you do feel that trading options is for you, then the next thing you logically need to know is where you can buy, sell, and write options.

An option is a contract to buy or sell a stock, usually 100 shares of the stock per contract, at a pre-negotiated price and by a certain date.

Just as you can buy a stock because you think the price will go up or short a stock when you think its price is going to drop, an option allows you to bet on which direction you think the price of a stock will go. But instead of buying or shorting the asset outright, when you buy an option you’re buying a contract that allows — but doesn’t obligate — you to do a number of things.

If there’s a company you’ve had your eye on and you believe the stock price is going to rise, a “call” option gives you the right to purchase shares at a specified price at a later date. If your prediction pans out you get to buy the stock for less than it’s selling for on the open market. If it doesn’t, your financial losses are limited to the price of the contract.

One of the first things you need to plan when you are getting ready to trade options is exactly how you are going to make your trades i.e. where will you buy, sell, and write options. Most options contracts are bought and sold on various options exchanges based around the world. These exchanges are easily accessible to the general public, but you cannot actually carry out the transactions yourself. In the same way you need the services of a stock broker to buy and sell stocks on the world’s stock exchanges, you need a broker to buy and sell options.