Online Stock Option Trading

Most investors deal in at least some stocks. It's a concept anyone can grasp. However, when it comes to stock options, comprehension of what they are and what's involved in earning a profit from dealing in them is less universal. Nearly all newcomers to stock market trading avoid them like the plague and many oldtimers aren't any more intrepid. Being able to trade in stock options online may eventually encourage those who lag behind to pick up the pace and enter the competition.

Hold this one thought in mind while we go though the basics: Stock options can provide significant returns. Options are contracts. If you have a contract which confers the right to buy (call option) or sell (put option) some underlying financial instrument, such as a stock or bond, at a predetermined price (strike price) on or before a preset date (expiration date), you've got an option. Options officially expire on the Saturday following the third Friday of the contract's expiration month. Since the market is closed Saturday and Sunday, this is just a bit of meaningless hooey, and that third Friday is the date to keep circled on your calendar.

Having, or opening, an online brokerage account is the first step. The second is getting it approved for options trading. The online brokerage you're dealing with will ask you a number of questions to determine if you meet their criteria for becoming an options trader. Due to government regulations, most options brokerages prefer new options clients to be experienced stock traders with a certain amount of funds to invest.

Assuming you've met those requirement, determine which stock you want to buy an option on. Nearly all stock-market reporting Websites show option prices as well as prevailing stock prices. You can always check the price of options at your online brokerage, but option prices are often delayed by 15 - 20 minutes and success in online stock option trading can depend a great deal on the most current information.

Understand that when you buy an option, you're not buying the underlying financial instrument. You're merely buying the right to buy or sell it at a certain price within a certain time. To make money on the option, you can hold onto it until maturity and then exercise it (anticipating it's worth more than the strke price). Or you can offload the option prior to the expiration date (assuming the value of the option itself has risen above what you paid for it).