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Stock Options Explained

When explaining stock options keep in mind an option is simply the right, for a specified period of time, to buy or sell an item at a guaranteed price. Therefore, stock options are rights to buy or sell shares of stock at a guaranteed price during the life of the option.

Many people hear about stock options but few understand the basics of options, fearing they are risky investments. However, once stock options have been explained, many investors use options to to reduce risk in their portfolios. In this case, we are discussing options that are traded on the exchanges, not employee stock options. Equity options, especially covered calls, protective puts and LEAPS offer investors straight forward ways to grow your wealth.

Stock options cost less then the underlying stock they represent. There are two types of options, "calls" and "puts". For each type you also will see the name of the stock, the strike price, the expiration date and the cost of the premium paid to buy or sell the option.

Stock Options Basics Tutorial
Stock options for beginners. Learn the basics of stock options.

Stock Options Definition of Terms
Learn what the terms used by options investors and traders mean.

Writing Covered Calls
Writing (selling) covered calls can improve the performance of your portfolio and reduce risk. Write calls introduces the basics of covered calls.

Total Return Approach to Covered Call Option Strategies
The Total Return Approach provides the framework to analyze the potential returns of owning stock and writing covered call options.

Covered Call Option Expiration
As options approach expiration an investor is faced with several decisions relating to their covered call option strategy.

Rolling Covered Call Options.
Rolling covered call options introduces how to close out the current option and then write (sell) another one by rolling forward, up and down as strategies.

Protective Put Strategies
Buying protective puts options is like buying insurance against a decline in the price of your stock. Wouldn't that be nice in this volatile market.

Stop Loss Orders vs. Protective Put Options
A comparison of whether stop loss orders or protective put options provide the best down side protection.

Long Term Options or LEAPS
Long-term Equity AnticiPation Securities (LEAPS) are option contracts that allow investors to take positions with much longer expiration dates, up to three years.

If you have a question check Stock Options FAQs.

If you want to learn more about using options consider reading Options Made Easy: Your Guide to Profitable Trading (2nd Edition) by Guy Cohen. It is a good way to help you to get started learning how to use call options.

Our Premium Members receive suggestions on how to employ covered call and protective put options to reduce risk and increase their overall return. If you are interested in learning how to use options to reduce your risk and enhance your returns request a four-week free trial to the Premium Membership. There is no risk, nor any obligation. If you have any questions regarding membership, please send an email to [email protected] and we will get right back to you. Your complete satisfaction is of utmost importance to us.

Free Monthly Stock Market Newsletter

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