Stock Option Trading
Option trading is basically trading that offers an option to the trader of whether or not to buy a stock. Options are contracts that give the purchaser the right to buy or sell a security, such as a stock, at a fixed price within a specific period of time. Option trading is also termed as stock option trading. In option trading, buying is termed a "call option" and selling is termed as "put option". Basically, option trading is a contract to buy or sell a specific number of shares of stock, at a predetermined or calculable price. The value of the contract in the option trading is determined from a formula in the contract. The five principal factors determining the value of the contract include the price of the stock, the strike price, the cumulative cost required to hold a position in the stock (including interest + dividends), the time to expiration, and the estimate of the future volatility of the stock price. The most common option trading is the trading of standardized options contracts, which are listed by various futures and options exchanges. Presently the six exchanges in the United States of America which list standardized options contracts based on underlying stocks include: - The Philadelphia Stock Exchange (PHLX)
- American Stock Exchange (AMEX) in New York City
- Pacific Exchange (PCX) in San Francisco
- Chicago Board Options Exchange (CBOE)
...Which are all open-outcry marketplaces. - The International Securities Exchange (ISE)
- Boston Options Exchange (BOX).
...All these exchanges are electronic marketplaces. Euronext.liffe and Eurex are the main exchanges for option trading in Europe. There is a liquid market in put and call options for certain expiry dates and certain strikes close to the current stock price, for large corporations in economies such as the United States. Thus the market offers the contract valuation. The others can use the contracts with different strikes and different expiries the market price to give an estimate of the future volatility that in turn can be used in models such as the binomial options model (for American options) or the Black-Scholes model with volatility smile for European options to value the non-standard contracts. Perhaps the least-known input into any pricing model for options is the estimation for future volatility, and thus the traders usually look to the marketplace to know the "implied volatility" of an option. This means that a trader can solve for the value if he is given the price of an option and all the other inputs except volatility. Is option trading for you? Consider this: First you need to weigh the risks involved and then determine the premium you're earning based upon this risk. You also need to understand that you're essentially competing with the other options traders out there and this ups the risk factor quite a bit. Make certain that you have the bank roll and the stomach for options trading before taking the plunge. You might find the water's icy. If you're looking for a proven business with passive income and almost zero risk, I would recommend this program - Check It Out Here Warmly 
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