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INTRODUCTION TO OPTION TRADING

Why Option Trading?
Option Trading gives you a good leverage over the movement of the stock and as it has an expiry, we take advantage from being a buyer and seller of options.

We do not need to pump excessive amount of money into the market before we can get reasonable returns and we can trade conservatively and limit our losses even in very unpredicted market movements.

“The first rule is not to loose money, the second rule is not to forget the first rule”
- Warrant Buffet

Is it Risky?
Yes there are risks in any form of investment. But as the cost of own an option is much lesser compared to owning the actual stock, this can be limited.

Statistics shows that most of the options expire without being exercised, is that good?
There are many option strategies and for those that we take on the position as a seller, yes, we want them to expire worthless (refer to option strategy). And in many other cases, we trade the option before expiry unless we have intention to own the stock.

So how do I play Option?
First of all, I would advise proper education either by our Option Education links or by getting a Option Course to understand how option works.

Then study the strategies carefully and decide which strategy is suitable for your own character and risk tolerance. This is because there are many strategies and they offer different range of risks, profit and market understanding. You don’t have to know ALL of them before you start, but at least you should know when to apply them.

After you have educated yourself confidently, the next step would involve analysis. There are three school of thoughts for analysis.
1) Fundamental Analysis – Studying of the business news, economic data, cash flow and other forms of data to derive an analysis on the company’s health.
2) Technical Analysis – Studying of the stock chart trends to derive analysis, believing that all the necessary factors are reflected by the chart movements.
3) Combination Analysis – Usage of both Fundamental and Technical analysis to analyze the company’s health

Setting up an account with an established brokerage firm and paper trade before actual trading is always advised as this would eradicate some of the potential mistakes like buying a spread instead of buying a straight, buy a call instead of a put, etc.

Wishing you success in your trades,

Hans Lee
Site Founder

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Disclaimer: Option Trading has potential risks and could loose alot of money. Do understand the risks involved before pursuing any trades. Please be aware that our website does NOT recommend any specific stocks or option purchases. Examples used are for educational purposes only. Option Trading Resource is not responsible for stock or options recommendations linked from our sites as we have no control over the sites content. We strive to provide the best information and we do update our site daily.