Basic Option Education: Three Things that Should be Covered
A good, basic option education package is important if you’re just getting started with trading options. There are dozens of choices available to help you with your trading education, but not all of them are created equally. If you’re shopping for a beginner course on how to trade options, you should look for one that covers these three important basics.
Anatomy of an Option
A good beginner course will answer these questions on the basic anatomy of an option: What exactly are you buying when you purchase an option? How do you tell what the terms of the contract are? What types of options are available? A course like this will take you through the terminology and notation convention so that you can read an options quote and understand what it is you’re actually buying. By the time you finish reading and doing any exercises associated with the course, you’ll understand how to read an option and what each part of the quote means.
Option Education Basics
Fundamental concepts you need to know in order to trade options successfully should be included in a beginner course. The material should discuss what an option is and what types of options are commonly sold. The course should give you basic definitions for commonly used terms like put and call, long and short, naked trading, on the margin – all the jargon that you’ll encounter as you read more about trading.
In addition, it should give you a basic overview of the differences between fundamental and technical analysis along with the arguments for and against each as a basis for an options trading strategy, as well as a description of the different types of charts used to track stock performance and the advantages of each as a basis for making decisions on trades.
Finally, a basic course in option education should include an overview of the different tools and software you can use to help you pick options, value options and trade options. The overview should include a list of features to look for in any software or platform you choose for your trading and the reasons why each are important.
Option Behavior
The prices and value of options and futures are influenced by a number of factors. There have been entire books written on the subject, but there are basics that you need to understand if you’re going to trade successfully. For example, discussions about stock volatility, the effects of the underlying stock price and the effects of time on the value of an option are all important concepts. In addition, you’ll need to know about ways to determine stock volatility, implied volatility and the Greeks – those bits of data that experienced traders use to determine how an option’s value is likely to move and when.
Before you dive into option trading, it’s important to educate yourself about the basics. A good option education course that covers all of these basics can keep you from getting in over your head.
Chris Robertson is an author of Majon International, one of the world’s MOST popular internet marketing companies on the web.
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