The amount by which an option is in-the-money is also referred to as its intrinsic value. Options trading platforms come in all shapes and sizes. Think of it this way: This price is determined by a few factors, including:.
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If using options for speculation doesn't fit your style, no problem — you can use options without speculating.
Even if you decide never to use options, it is still important to understand how companies you invest in use them. For instance, they might hedge foreign-exchange risk, or give employees potential stock ownership in the form of stock options. Most multi-national corporations today use options in some form or another. This tutorial will introduce you to the fundamentals of stock options. The concepts can be broadly applied to assets other than stocks, too.
Many options traders have years of experience, so don't expect to be an expert immediately after reading this tutorial. Call and Put Options Options Basics: How Options Work Options Basics: Types of Options Options Basics: Options Spreads Options Basics: Options Risks Options Basics: The best way to think about options is this: What about representatives who can answer questions about your account? Even before you apply for an account, reach out and ask some questions to see if the answers and response time are satisfactory.
Options trading platforms come in all shapes and sizes. They can be web- or software-based, desktop or online only, have separate platforms for basic and advanced trading, offer full or partial mobile functionality, or some combination of the above.
Check to see if the fancy stuff costs extra. For example, most brokers provide free delayed quotes, lagging 20 minutes behind market data, but charge a fee for a real-time feed. Similarly, some pro-level tools may be available only to customers who meet monthly or quarterly trading activity or account balance minimums. But because commissions provide a convenient side-by-side comparison, they often are the first things people look at when picking an options broker.
Of course, the less you pay in fees the more profit you keep. Platform fees, data fees, inactivity fees and fill-in-the-blank fees can easily cancel out the savings you might get from going with a broker that charges a few bucks less for commissions.
Discount brokers can charge rock-bottom prices because they provide only bare-bones platforms or tack on extra fees for data and tools. Introduction to Options Trading. How to Trade Options. NerdWallet adheres to strict standards of editorial integrity to help you make decisions with confidence.
Some of the products we feature are from partners. We adhere to strict standards of editorial integrity. Some of the products we feature are from our partners. How to trade options What are put options? What are call options? Options terms and definitions. Best brokers for options trading Choosing an options broker Beginner options strategies Advanced options strategies.
Next How to Trade Options. Previous Introduction to Options Trading. Next 5 Tips for Choosing an Options Broker. Previous How to Trade Options. Understanding Options Options are financial instruments that can be used effectively under almost every market condition and for almost every investment goal.
Among a few of the many ways, options can help you: Benefits of Trading Options: Orderly, Efficient and Liquid Markets Standardized option contracts allow for orderly, efficient and liquid option markets. Flexibility Options are an extremely versatile investment tool. Leverage An equity option allows investors to fix the price for a specific period of time at which an investor can purchase or sell shares of an equity for a premium price , which is only a percentage of what one would pay to own the equity outright.
Limited Risk for Buyer Unlike other investments where the risks may have no boundaries, options trading offers a defined risk to buyers. This options trading guide provides an overview of characteristics of equity options and how these investments work in the following segments: Two Ways to Sell Options Options: Benefits and Risk Next: This site discusses exchange-traded options issued by the Options Clearing Corporation.
No statement on this site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice.