I’ve recently started getting into the stock market. It’s a huge area, especially for a beginner, I didn’t know where to start and ask for help. I found TD Ameritrade and it wasn’t till a few months later, when I noticed that they had a section filled with webcasts. I watched a webcast from the thinkorswim community and to my surprise I found the information interesting and informative. I had the chance to learn about options trading and hedging risk. The web series was titled “Your Trade, Your Strategy: Learn to Market Strategies from the Basics to the Extreme” (Will share link as soon as author shares webcast) I went over to Investopedia and got the following definition:
Options Trading Def:
A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).
Call options give the option to buy at certain price, so the buyer would want the stock to go up.
Put options give the option to sell at a certain price, so the buyer would want the stock to go down.
The speaker for “Your Trade, Your Strategy: Learn to Market Strategies from the Basics to the Extreme” was Don Kaufman. He told us that to be good at options trading, one should not think up outcomes, but look at the probability of outcomes. We looked at different strike amounts and tried to choose price points that had a reasonable chance of making a profit. We were shown how to hedge our options by choosing two different strike options that could either lose or gain money. Don told us not to worry about the calls and puts on either side of the strike because they are similar. One of the panelist shared an interesting quote that helped me understand and remember the difference between calls and puts. “There is a saying used with picture of a telephone receiver, “call up [phone receiver to make a phone call], then put down [to end the phone call]”. – Shared by Cindy Faber. To me, this mean that the calls are the bulls and the bears are the puts. However, mind you, that just because one side is a bull and other side is a bear, that doesn’t mean that it’s a sure way to make money. You must look at market trends and read the news. From my own experience, the market does what it wants, it will not behave the way you want it. TD Ameritrade Webcasts: Think of Swim – The Archive As always good luck on your adventure with options trading!
One response to “What is Options Trading”
Would like to get into this sometime in the future.