An Introduction to Options is an ongoing series of short articles that is aimed at the absolute beginner to novice in the use of options as an aid to investing.  The goal of the series is to bring you to an intermediate level where you can take advantage of existing more advanced option resources.  In format, it will be more like a tutorial than a reference or text book.  Each article will introduce important option concepts combined with an actual strategy you can use.  Although the risks and rewards of that strategy will be discussed, I suggest that you do not try actual trading until you have learned more of the basic concepts.  On the other hand, you may try “what if” or paper trading and see what would have happened.

What is an Option?
An option is the opportunity to buy or sell a stock at a set price on or before a particular date.  The set price is called the Strike Price and the particular date is called the Expiration Date.  The value of the option depends on the Strike Price and the actual price of the underlying stock or the Stock Price.  After the Expiration Date the option is worthless.  Options are traded in exactly the same way as stocks, but instead of buying or selling stock you buy or sell the option.  The selling price of the option is called the Premium.
What are the downsides to Options?

• The stock has to rise or fall more than the premium you paid to make a profit.  In the current example the stock has to rise almost 10% to cover the 2.70 option premium.  If the stock rose 2.00, you would have made a $200 profit if you bought the stock, but a $70 loss if you bought the option.
• There is no time limit on the stock, but the option is worthless after the Expiration Date.  Therefore on January 17 the stock would still be worth its market price, but the option would have no value.
• An option contract is always 100 shares and you need enough cash to pay the premium for 100 shares.
• Options are available on only about one-third of listed stocks.

Option Strategies. Is a listing of the various ways to use option.
Kaboom Forum. Allows you to discuss on the KaboomStocks
Download. Download this page as a Word 2003 document