Options Trading For Beginners: Learn How To Get Started and Make Money With Options Trading – Stock Options – Binary Options – Index Options – Currency … – ETF by Michael Johnson

Options Trading For Beginners: Learn How To Get Started and Make Money With Options Trading – Stock Options – Binary Options – Index Options – Currency … – ETF by Michael Johnson

Chapter 1
Options Trading Basics
What is an option?
An option is simply a contract between two parties which is based
on an underlying asset. You can create an options contract for
any type of asset, but our focus is on options contracts for
stocks. They are called options because one party of the contract will have
the option to buy or sell stocks depending on whether or not certain
conditions are met. 
An option is a type of derivative. While they've been around for a long
time, the general public didn't become aware of the concept of derivatives
until the 2008 financial crash, when a particular type of derivative,
mortgage-backed securities, caused financial havoc when vast numbers of
bets went terrible at the same time. A derivative sound fancy but all it
means is that it's an asset whose value depends on the value of something
else. In the case of options, the options contract is based on the value of the
shares of stocks that the contract is based on.
One option contract represents 100 shares of stock. The contract will cost
the buyer a much smaller sum than it would cost to buy the shares of stock.
In a sense, an options contract is a bet that the stock will move in a specific
direction over a given time. That is why they can be used for speculation.
Like most contracts, an options contract has an expiration date or "expiry".
In the United States options can be exercised on or before the expiration
date, if the agreed-upon condition is realized. In Europe, they can only be
exercised on the expiration date. 
Trading Options
Now like anything else, you can buy and sell an option itself. What is an
option worth? The premium! Depending on various factors, the premium
can go up or down. The person who buys the options contract is the owner
of the contract. The seller still has their obligation, if the share price meets
the required conditions against the strike price in the contract.
The owner of the option is considered to be long in the position. If you are
short on the position, that means you’ve sold an option you didn’t own at
the time of sale. 
The buyer of an option has three possible outcomes:
They can hold the option until it expires, and the strike price is not
exceeded, so the option expires worthless. 
They can sell the option at some point before it expires. In this
case, you are said to "close out your position".
They can exercise their rights under the option. This means you
will buy the underlying shares of stock or sell the underlying shares
of stock, for a call or a put, respectively.
The buyer of the option is the person with the right but not the obligation to
buy or sell the shares. The seller of the option contract (also sometimes
called the writer) should buy or sell the shares. Their possible outcomes are:
You can repurchase the option and close out your position.
Take “assignment”, which means buy or sell the shares as required
if they have met the condition set by the strike price.
If the strike price condition isn't met, you let the contract expire
worthlessly, and keep your premium.

Options Trading For Beginners: Learn How To Get Started and Make Money With Options Trading – Stock Options – Binary Options – Index Options – Currency … – ETF by Michael Johnson