Forex Indicators

Option Trading?

I really like to play stock, day strade, swing trade, long short, you name it. But what is options? I heard that the risk is so much grater than stock. Also can you earn money by predicting which stock will go up or go down ? Is this option? Does option trading similar to FOREX? Sorry, does this means I have to specipy if stock a gonna go down to lets say from $ 9.45 to $ 7.30 SPECIFICALLY. If this is so. It is mighty difficult. I know a lot of stock prices that is for sure to PLUMMET however to say i have to give a SPECIFIC price ? that is almost impossible ?

Public Comments

1. Options: these are contracts to buy or sell stock at a set price there are basically 2 types with 2 sides each; Calls which is the option to buy 100 shares at the price you specify within the next 9 months(long). Puts which is the option to sell 100 shares of stock at the price you specify within the next 9 months(long). if you are buying these (long) then you get that option but you must pay the person selling this option a premimum for taking the risk that you would excercise the option (actually go through with the closing transaction) On the other side of those there is the short position (you sold the option) Calls (short) obligation to sell 100 shares of a stock at the price specified in the option Puts (short) obligation to buy 100 shares of a stock at the price specified in the option If you are short the option you got paid to take a risk. assuming that the stock price doesnt do what the other side is hoping for you walk away at the end with the premimum. (you don't have to give it back) Now this is not the only part of options and inside these 4 little things is a whole world of risk...you have to completely understand what you are getting into with this as options have the ability to make a ton of money fairly quickly but they also can have an unlimited risk associated with them (if you are on the wrong side of an option (short a call) and the stock sky rockets you could be forced to buy the stock really high in order to sell it really low to the person who bough the call from you.
2. Buying options are not much different than gambling in vegas. You purchase options on stocks at a small fraction of the stock price. The option says that you have the ability to buy the stock at a specific strike price within a certain date range.
3. Options are financial derivatives. This means they are things that are "based" on other financial instruments. For example, in stocks a "call option" is a thing you can buy, which gives you the "right" to buy some shares of a stock at a certain price, if you want to. You can trade options. It is no more or less risky than any other kind of trading. Some people may say it's more risky but they are confusing "risk" with "speed of losing your money." You may lose money quicker with options (because they provide leverage) but the method with which you lose it will be the same as the method you lose it by trading stocks. Professionals and companies primarily trade options as "hedging" methods. In other words for "risk control." They do not necessarily trade them to make a profit. Some people trade options to try and make profit. Like with any trading, only a few are consistently successful. These tend to be people with a good understanding of sophisticated mathematics. That's because option pricing is based on higher math. FOREX has nothing to do with options. It means "currency trading."
4. This website will teach you everything about options.
5. IMHO the first three answers you received did not do a very good job of describing what options are. You will get a much better description of options by looking through the first few pages of the tutorial at http://www.cboe.com/LearnCenter/Tutorials.aspx <<<I heard that the risk is so much grater than stock.>>> With options, if you understand them, you can choose how much risk you have, more, the same or less than with stock. <<<Also can you earn money by predicting which stock will go up or go down ?>>> Yes with the right strategies. If you simply buy options you should have predictions about which way it will go, how much the price will change, and when the price will change. <<<Does option trading similar to FOREX?>>> The only real similarity is that both allow you to use leverage. ----------- A few comments about some things said in other responses. All options have expiration dates. Normal options expire on the Saturday following the third Friday of the month, up to eight months in the future. Some stock also have long term options known as LEAPS, which can expire up 30 months in the future. I have no idea why one the responses talked about nine months. As for the comment that trading options is gambling, that can be true but does not have to be. Similarly, I would not say most professionals trade options to hedge. When they hedge it is to reduce risk, protecting profits or reducing losses. Most professionals initate option positions to make a profit, then adjust/hedge the position as required. ----------- One thing to understand is that option traders usually try to profit with predictions about the future volatility of a stock price at least as much as the direction the stock price will move.