Stock Options

Option Trading Basics

Option trading can substantially increase return on investment on stocks rather than trading the stock itself. Not all stocks have options available but you will learn how to find out which ones do at the end of this page. Although there are many creative variations that can be utilized in option trading, in its basic form, the principle of option trading is similar to that of buying an option to purchase a home. In a home, some sellers will allow a person to buy an option to purchase their home for a certain set price and by a certain date. Let’s say the period of time given to exercise the option is one year. The option holder can exercise that option to purchase the home anytime during that year because he/she has been given the right to purchase the home or not. That is why it is called an option - because it is the potential buyer’s choice or option. However, in most cases, once the year is over, the option expires. This kind of real estate transaction can definitely be advantageous to the option holder because if the value of home has gone up during that year, it can be purchased at the pre-agreed upon price which will most likely be below the current market value guaranteeing instant equity.

Notice: Options are considered to be a risky investment. Even experienced traders have some risk with option trading. However, every investment carries some risk and by the time you finish this article, you will see the tremendous upside to options.

Comparing stock options, the first option I will discuss is a CALL option. It is named a CALL because like an option to purchase a home, purchasing a CALL gives the option trader the right, to call in and purchase the underlying stock at a set price and by a certain date. Here again, it is option trader’s choice to purchase the stock or not purchase it. For example, lets say you want to buy an option to purchase Apple Computer (AAPL). At the time of this writing, AAPL was trading for approximately $41.00 a share. A CALL option to buy AAPL at $40.00 a share was available for approximately $2.30 a share. So for a very small fraction of the cost of the stock, an option can be purchased to buy the stock at a set price, (the strike Price) no matter how high that stock goes. Unlike buying an option on a home though, you do not buy the entire company, obviously. Rather, you buy a very small portion of the company called shares.

Stock options require that an option trader purchase in contract packages of 100 shares. (Sometimes a contract may be a different size but it is rare that this happens and is not important to discuss it at this point.) So 1 contract of an option that has a price of $2.30 a share would cost $230 ($2.30X100=$230). Two contracts would cost $460. Three contracts would cost $690 and so on. So, for only $230, in this example, the option purchaser controls 100 shares of AAPL stock. This particular example of an APPL CALL, gives the option trader until the third Friday of April to purchase the stock. This is called the expiration date and I’ll discuss that and strike prices in more detail in a moment.

First, I want to hammer home the point that, with the CALL option discussed above, you have the right to purchase AAPL for $40 a share no matter how high it goes. That means that if the stock goes up to $50, the option holder can call in the stock (purchase it before the expiration date) at the strike price of $40 a share and then immediately sell it for the then going market price of $50 and make a $10 profit per share minus the cost of $2.30 a share for the CALL options. This is a net profit of $7.70 a share. (Less commission) As a side note, you could call in those shares of AAPL and simply keep the stock in your portfolio if you wanted the stock as a long-term investment. Are you starting to see the advantage of option trading? If yes, I have something even better to tell you.

Option traders can trade the option itself without ever having to buy the stock. It can be traded just like a stock only in contracts of 100 and once the options have been purchased, the owner of those options can sell them any time before the expiration date and never touch the stock itself. In fact, this is what most option traders do. In our example above, if AAPL increases in price from $41 to $50 a share, the option itself could increase in value anywhere from $6 to $8 a share. Think about this. The option was bought for $2.30 and if it increased in value by, let’s be conservative and say $6 or to $8.30, that’s a 261% profit. (Sell at $8.30 – buy at $2.30=$6 Profit --- $6/$2.30=261%)

The leverage of option trading is phenomenal! Using this same example, look what happens if a trader bought the stock instead. The stock is purchased for $41 a share and is sold for $50. That’s a $9 dollar gain and while that is more dollars than the option made, the investor had to spend $41 to make that $9 and that only equates to a 22% profit. While that is a great profit, it’s not nearly as exciting as the 261% profit made from the option trade. Let’s look at totals. On the options, 1 contract (100 shares) was purchased for a $230 and made a $600 profit. On the stock, $4,100 would have been invested to make a $900 profit. What percentage return do you like best? Further, because so much less capital is spent on the option, more dollars available for other investments.

Let me give you a personal story. The reason why I have been using AAPL for my examples is because of my success with the stock. I have had AAPL in my portfolio for years. The stock didn’t really have much action in the price for a long time. Then the company came out with the iPod product and other new products that were a big hit. With these new popular products, AAPL’s sales and profits soared and so did the price of their stock. In January of 2005, the stock had gone from the low $30s just a few months earlier to the mid $60s. That’s doubled the price in just a few short months plus the company was expecting great growth for the next quarter. While I am into making short-term investments into stocks that split, I don’t usually try to predict when a stock is going to split. It’s too much of a gamble as far as I’m concerned. However, I could not resist the recent phenomenal move in this stock. So I told my partner, Mike, “I bet AAPL is going to announce a split soon”. Mike said, “I agree and if you’re willing to bet on it, why don’t you invest in it”. So guess what? I did invest in it, but instead of buying the stock, I decided to use the leverage of options. I figured that it might be a while before the company announced a split so on January 3rd 2005, when the stock was trading around $64, I purchased 10 contracts of the April 60 CALL for about $6. That’s a total investment of $6,000. (10 contracts X 100 shares X $6= $6,000) Sure enough, on February 11th they announce a 2 for 1 split meaning for every one share a trader owns before the split, they will own twice as many share on split day but at half the price. (See the chapter on stock splits) The split was to take place on February 28th 2005.

By the announce date on February 11th the stock had increase from $64 on January 3rd (the day I purchased the CALL) to $81. By the time the stock split on February 28th it was up almost another $9 to near $90. WOW! Let’s analyze this. If I had purchased $1,000 shares of AAPL stock at $64 a share, I would have had to invest $64,000. If I sold that stock when it was at $89 I would have made a $25,000 profit for a 36% profit. Yes, a great profit in only on month but it would have required a $64,000 investment to do it. Now look at the option. Ten contracts to control 1,000 shares were purchased for $6,000. On February 28th when I sold, those options were worth approximately $26,000 for a profit of $20,000. Again, while that is not as much dollars as the stock made, the investment was much smaller and look at the leverage. A $20,000 profit on a $6,000 investment is a 333% profit in about 30 days! That calls for a Triple WOW! Annualized, that’s about 3,996% - unbelievable but true.

You might say, “how often does a stock increase in value by $10 or more”. Well ---- the APPL story is extraordinary, but any company that is doing well and is increasing their sales and profits is capable of having a great run up in their stock price. Companies that are splitting their stocks often have great runs. Why - because companies that split their stock, are usually very profitable and fundamentally doing well which causes their stock to run up in price. And when you apply option trading to a winning strategy such as in the stock split strategies published by Splitmaster.com, the leverage from option trading can be enormous (See our Strategies page).

Obviously, not all stocks go up when you want them to and they are certainly capable of going down substantially. So what happens to a CALL option when a stock goes down? Well, the option goes down too, but think about it for a minute. Again using our AAPL example, let’s say it went down $10 instead of up. If an investor purchased the stock for $41, they would lose $10 a share in value. However, if the investor bought the option for $2.30 a share, the most they could lose is $2.30 a share. If the stock drops down $25 the option trader still only loses $2.30 a share. So not only is option trading a great leveraging tool for an upside play, it also offers protection or limits the loss when a stock takes a large hit. I hope you are getting excited because option trading is truly a wonderful investment tool. However, you should thoroughly understand the concepts and risks before diving in. Reading and studying the information in this chapter is a great start but read and study every piece of training literature you can your hands on. I’ll give you some ideas on where to look for option information at the end of this chapter.

Now, more on expiration dates. Simply stated, expiration dates are the dates in which an option expires and is no longer tradable. Expiration dates are always on the third Friday of each month. (Actually, options expire on Saturday but since there is no trading on that day, the effect to option traders, is that they expire on Friday at the close.) Options can usually be purchased with expiration dates one month to several months out. So for example, if it is February and an option trader wants to buy a CALL on XYZ stock, he/she could buy an option with a February expiration (as long as it is before the third week of that month), or they could buy an option with a March expiration or an April expiration and so on as long as a given month is being offered. In fact, options can be purchased with expiration dates one or more years out and these are called LEAPS which stands for Long-term Equity Anticipation Securities. There are advantages and disadvantages for buying options with close expirations as opposed to further out expirations but that will be discussed along with LEAPS in our advanced option chapter. For now, the following is your first lesson on the risks associated with options and expiration dates.

If an option is allowed to go to the end of the trading day on the expiration month (third Friday of the month) without being traded or closed out, the option will terminate worthless. So once an option trader invests in an option, it is vital that the option is watched closely. The option is also at risk of becoming worthless by the expiration date due to poor performance in the underlying stock. For example, if an option trader invested in an option in XYZ stock and the stock took a large drop in price, it could bring the value of the option to zero. If the option is at zero on expiration date, there is not much an investor can do but say good-by to their investment. Remember though, the CALL gives you the option to call in and purchase the underlying stock any time during the period the option is active. That means that even if the option is worthless on expiration date, the stock can be called in and purchased for the strike price but no one is going to do that in this case and here is why.

Using our XYZ stock example, lets say it is February 5th and you bought a CALL option on the stock with an expiration month of March. The stock was trading at the time for $36 so you bought the option with a strike of 35 and you paid $1.50 for each share or $150 per contract. The third Friday of March or expiration date arrives. During the time you owned the option, the stock tumbled in price to say $30 making the option worthless. Even if the information you studied leads you to believe the stock will eventually reach $45, you are not going to call the stock in because you have to pay the strike price, which is $35. You are better off letting the option expire worthless and lose the $1.50. Then, if you really want the stock, buy it on the market for the then going price of $30. You save yourself $3.50 this way then from calling it in. Keep in mind though, that if the stock itself had been purchased, the drop in value would be $6. ($36-$30=-$6) Owning the option limited the loss to $1.50. One more thing to keep in mind here, and that is when you own an option and it is going down, you can sell that option any time you feel you should. So you do not have to watch it go to zero. The hardest thing to do, of course, is to make that decision to sell, because you never know if and when the stock and the option may turn around and go back up. That’s why it is always best to follow a strategy such as the strategies published by SplitMaster.com

Let’s move on to strike prices. This subject has a bit more information to absorb than expiration dates but let me interject here that, at this point, it may seem that the subject of options is very hard to understand but believe me, once you get the hang of it, it will become like second nature. As stated above, the strike price is the price you have the right to call in and purchase the underlying stock for. So if an option trader purchases an April option with a strike of 35 on XYZ stock, he/she can call in and purchase that stock for $35 any time during the period the option is active. Many people do not call in a stock until near or on expiration date and when they do call in the stock, it’s usually because they want to keep it in their portfolio for a longer period. Otherwise, most Option traders just sell the option itself and take the profit (or loss) as stated above.

Option traders can choose from many different strike prices on a particular option. It depends on an individual stock and how actively it is traded as to how many strike prices a particular stock has. If it has a lot of activity, meaning there are many traders wanting to buy or sell the options, it may have more strike prices. Less activity brings on less strike prices. Let’s say XYZ stock is trading for $40 and the options for the stock are very active. Strike prices on this option may start as low as $10 or less and go as high as $70 or more. The strike prices are determined and set by Market Makers and they decide what will be offered based on what option traders are willing to buy and sell. Market makers are the people who administrate and control the trading of options and I will talk more about them when I discuss Bid and Ask prices. Although there are circumstances that sometimes make this different, generally speaking, strike prices are in increments of $2.50 up to 50, then every $5 up to $200 then every $10. See the example below of a May option.

Table 1
CALL Options - Expire at close Fri, May 20, 2005

Strike	Symbol	Last	Chg	Bid	Ask	Vol	Open Int
22.60	AAQET.X	21.60	+ 0.50	21.20	21.50	50	30
25.00	AAQEE.X	19.00	+ 0.50	18.80	19.00	20	30
27.50	AAQEY.X	16.60	+ 0.60	16.30	16.50	12	20
30.00	AAQEF.X	14.10	+ 0.50	13.80	14.10	6	33
32.50	AAQEZ.X	12.10	+ 0.90	11.40	11.70	771	718
35.00	AAQEG.X	9.40	+ 0.50	9.10	9.30	106	379
37.50	AAQEU.X	7.10	+ 0.40	7.00	7.20	96	453
40.00	AAQEH.X	5.20	+ 0.30	5.10	5.30	528	2,422
42.50	QAAEV.X	3.60	+ 0.20	3.50	3.70	740	6,914
45.00	QAAEI.X	2.35	+ 0.15	2.30	2.40	2,371	12,915
47.50	QAAEW.X	1.40	+ 0.05	1.40	1.50	1,820	24,359
50.00	QAAEJ.X	0.85	+ 0.10	0.80	0.90	4,919	9,853
55.00	QAAEK.X	0.30	+0.10	0.20	0.30	236	2,533
60.00	QAAEL.X	0.05	0.00	N/A	0.10	0	228
65.00	QAAEM.X	0.10	0.00	N/A	0.05	0	160

In the table above, the Strike or strike prices are listed in the left column. Note that there are strikes at every $2.50 up to $50 then the strikes change to every $5. Since we have the table to view let me explain the other columns. The second column on the left labeled, Symbol, is the option symbol for each individual strike. This is the symbol your broker would use to trade the option. When an option trader gives an order to buy or sell an option, he/she would either give the broker the option symbol itself or give the stock symbol, and state that they want to buy a CALL on XYZ stock, with a strike price of 40 and with an expiration of X month. So for example, if you were buying AAPL options, you would tell the broker that you want to buy the May 40 CALL to open.

Here is another side note. When buying and selling options, it is important that you tell the broker that you want to buy to open when you are buying the option and that you are selling to close when you are selling the option. Buying the CALL opens up the transaction in your account and it sits there until you sell it to close the transaction. There are a number of ways an option transaction can take place. I will discuss this in the advanced options chapter. You want to make sure that the broker understands your instructions or other results could occur. Likewise, if you are trading on-line make sure you click on all the right selection to make your trade the way you intended. If you are not sure when you are making an on-line trade, call your broker to make sure you are executing properly.

Continuing on with our table, the next column labeled Last, is the last price the option traded for. Next, Chg is the amount the option has changed from close of the day before. So if the 32.50 strike for example, closed the night before at $11.20 and it went up today to $12.10 today, the change would be + .90. These numbers will constantly change throughout the trading day. The next two columns are the current bid and ask and just like in the stock itself, the bid is the price that the buyers are willing to buy the option for and the ask is what sellers of the option are willing to sell it for. Look at these columns and you will notice that there is anywhere from a .10 spread between the bid and ask up to a .30 spread. The bid and ask constantly change throughout the trading day and there are all kinds of buy and sell prices being offered by option traders. It is the market makers who review all the buys and all the sells offered by traders and they decide which price to post for the bid and ask. Of course everything is done with the aid of computers.

You might ask, if buyers want to buy the option at one price and sellers want to sell it at another price, how does anything get traded? This is a good question. There are two ways to order a trade on options or stocks. A trader can put in a limit order, which is an offer to buy or sell the option at a specific price or a trader can put in a market order. A market order basically says, sell or buy the option for the current going price. This usually means, if you’re selling, you’ll get the bid price (lower side) and if you’re buying, you pay the ask price higher side. In other words you get the worst price. However, it is always the fastest way to execute a trade. I personally do not like market orders. I like limit orders better but with limit orders, a trader runs the risk of not having the order filled. In a limit order, a trader may put in an order for a price that is in the middle of the bid and ask. So, if the bid on a particular option is $1.50, and the ask is $1.80, a trader may put in an order to sell the option at $1.70 for example. The order would actually go in as a sell at $1.70 or better. Sometimes a stock moves up fast and goes right past the limit order amount and gets filled at a somewhat higher price so the words “ or betterr” are always important to put in. Your broker should automatically put the order in this way. Since the price of the option is always changing, the trader is counting on the direction of the price to move to the $1.70 or better. The option price could move against the trader or not move at all so the order never gets filled that day. But much of the time, if the limit order is not too far out of line, it does get filled and the trader receives the price they put the ordered in for. I say not too far out of line because a trader can put any limit price they want. So if the bid is $1.50 and the ask is $1.80 and a limit order is put in to sell the option for $2.50, that order will most likely not be filled unless the stock takes off to the up side.

The column (Vol.) is the volume of trades that have been made that day. So in the above table, the top line or the 22.50 strike price has traded 50 contracts that day. The last column (open Int.) stands for open interest. This is the number of contracts traders are interested in selling or buying. In other words, this is the number of contracts that are in line to trade but have not traded yet. If for example, a trader is trying to sell an option for $.50 higher than it is currently trading, that order will not get executed. The trader is hoping that during the day, the price of the stock will move in their direction and they will eventually get traded. When you begin trading options, you want to make sure there is some open interest in any option you may want to buy. If there is no open interest and you try to buy that option, you may be the only trader out there and when it comes time to sell, you could have problems. I will tell you in the advance option chapter, why this not as big of concern as most people think but when you first start trade, follow this rule.

I bet you thought we were through with strike prices. Not yet. There are two more aspects of the strike price that I want to talk about. This is the concept of strike prices that are in the money or out of the money and the concept of premium verses intrinsic value. To determine if a strike price is in the money or out of the money we have to take a look at the current price of the stock. Simply stated, if a strike price on an option is below the current stock price, this is a strike that is in the money. If the strike is above the stock price it is out of the money. So if a stock is trading at $41, the 40 strike or the 35 strike etc., are in the money. The 45 strike or the 50 strike etc., are out of the money.

The cost of an option for a given strike price, is determined again by the market makers. That cost is usually comprised of intrinsic value plus premium. Intrinsic value is the true value of an option and to figure out what the intrinsic value is, simply subtract the strike price from the current price of the stock. So, in our example, if a stock is trading for $41, the option with the 40 strike price has $1 of intrinsic or true value. ($41 stock price – $40 for the strike = $1) An option that is equal to the current stock price is considered to be at the money. Any cost for the option over and above the true value, is premium and this is what the market makers tack on top. So again, in our example, if the option with the 40 strike is selling for $1.50, it has $1 of true value and 50 cents of premium.

The amount of the premium depends on how far out the expiration date is and how active the option is. An option with an expiration that is three months out will have much more premium than an option that has an expiration date only a few weeks or one month out. Going back to AAPL, which was selling for $41 at the time, had an April option with a 40 strike which was trading for $2.30. That would mean that it had $1 of true value and $1.30 of premium. AAPL is a very popular stock so there is a lot of activity in the options making the premium higher. The May 40 option was selling for $3.60 so that is $1 of true value and $2.60 of premium and the July 40 option (June was not offered at the time) was $4.80. Get the idea? This higher premium for time is called the time value, which diminishes, as the option gets closer to the expiration date. During the last week before expiration date the premium will become next to non-existent. In the table below, let’s say that on April 15th we purchased the July 40 CALL on AAPL for $4.80. Let’s assume, that as time goes by, the stock stays stuck at $41. Of course in real life that never happens but this is only for the purposes of analysis. Study the table below and see how the premium diminishes with time.

Table 2

July 40 option was purchased on April 10 and teh stock is at $41 on each date.
DATE	April 20th	May 20th	July 20th
Intrinsic Value	$1.00	$1.00	$1.00
Premium	$3.80	$2.90	$0.25
Total Price	$4.80	$3.90	$1.25

Market makers get their fees out of the premium. I stated above that if an option is really active, the market makers boost the premium. This action by the market makers irritates experienced option traders who feel that market makers sometimes take too much advantage of a lot of activity. If you start trading options, it will not be long before you start developing your opinions too. But it is something we all put up with because we have little choice and the leverage is still great. One more thing about premiums - You will find that the further in the money or out of the money an option strike is, the smaller the premium. So for example if a stock is trading for $41 and you look at a 25 strike, you will find that this option has more true value than premium. Test yourself by looking at Table 1 above. Assume the stock for this table is trading at $41.50. Now look at each strike and determine the intrinsic or true value as opposed to the premium. You will quickly get the idea.

Well ---- believe it or not, that about sums it up for the basic principles of the CALL options. However, there is much more to learn about different types of options and the many ways to trade options. In this chapter, I will teach you about one more type of option but I will leave the different ways to trade options and the different strategies that can be utilized with options for other chapters.

The next type of option I want to talk about is the PUT option. Basically, all the fundamentals you have learned above for the CALL option can be applied to the PUT option except for one thing. While CALL options are bought for stocks that traders believe are going up, PUT options are purchased because traders believe the underlying stock is going down. In other words, the PUT value goes down when the underlying stock goes up and it goes up when the underlying stock goes down. So buying a PUT is a bear play. Let’s take a look at a PUT table on AAPL.

Table 3
PUT Options - Wxpire at close Fri, May 20, 2005

Strike	Symbol	Last	Chg	Bid	Ask	Vol	Open Int
27.50	AAQQY.X	0.10	0.00	N/A	0.10	0	88
30.00	AAQQF.X	0.15	+ 0.05	0.10	0.15	271	351
32.50	AAQQZ.X	0.35	+ 0.15	0.25	0.35	224	3,629
35.00	AAQQG.X	0.70	+ 0.25	0.65	0.70	522	10,028
37.50	AAQQU.X	1.40	+ 0.50	1.30	1.40	12,230	13,456
40.00	AAQQH.X	2.25	+ 0.65	2.20	2.35	11,905	8,920
42.50	QAAQV.X	3.70	+ 0.90	3.50	3.70	3,870	4,695
45.00	QAAQI.X	5.30	+ 1.10	5.10	5.40	439	1,959
47.50	QAAQW.X	7.10	+ 1.20	7.00	7.30	77	432
50.00	QAAQJ.X	9.10	+ 1.20	9.10	9.40	66	645
55.00	QAAQK.X	12.20	0.00	13.80	14.20	0	71
60.00	QAAQL.X	16.30	0.00	18.60	19.10	0

You can see that all the columns look the same as in the CALL table and have all the same meanings. When you think of buying a PUT though you just have to put your head in a reverse mode. (No pun intended) Remember, buying the CALL gives you the option (your choice) to purchase the underlying stock. Buying the PUT gives you the right but not the obligation to put or sell the underlying stock to someone else.

A PUT can be purchased as a protection against a stock you own in your portfolio. Using AAPL as our example again, let’s say you own 500 shares that you purchased in October of 2004 for the split-adjusted price of $19. AAPL runs up to $41 so it had a great run. You want to keep AAPL but you are a little nervous that it could go down because the tech sector is having a hard time and things are dropping. So you purchase a May 40 PUT to open for $2.25. Now let’s say you were correct in your thinking and the stock drops to $35. You could then put the stock to someone, for the strike price of 40 and save $5 in losses minus the cost of the option of $2.25, which gives the trader a net savings of $2.75 minus commission. By the way, who the stocks get put to is decided by a computer program and is pretty much a random process.

Here again as in the CALL, most option traders would just sell the option and take the profit on the option itself and not deal with the underlying stock. In fact, bear traders would buy an option on a stock they felt was going down even if they did not own the stock. They just trade the option.

One of the most important concepts to remember is that in dealing with a PUT, you have to think in reverse to a CALL. This next concept that I will explain may seem confusing at first but as you think about it and work with it, the idea will become much simpler. Remember that we discussed in the money and out of the money when dealing with CALLS? I taught you that if a stock is currently trading for $41, a strike of 40 would be $1 in the money and a strike that is 45 would be $4 out of the money. When dealing with a PUT you have to think exactly the opposite. So with the same $41 stock, a strike price of 45 would be in the money by $4 and a strike of 40 would be out of the money by $1. The reason why it is the opposite is because the value of a PUT increases or decreases in the opposite direction of a CALL, as I explained above. Like the CALL, a PUT has intrinsic or true value plus premium. However, for the following explanation, let’s just assume the value of the PUT is all true value. Think about this. If you buy a 45 PUT option in which the underlying stock is $41 then you are $4 in the money (intrinsic or true value). What happens if the stock goes down as expected? The 45 PUT will gain in value so that if the stock slips to $40 you would now be $5 in the money making the 45 PUT worth more. If the stock goes up in price to say $44, the 45 PUT would lose value and be only $1 in the money. Are you starting to catch on? Go to the PUT table above and work with the strike prices. Try to figure out if each strike price is in the money or out of the money. When you do this however, you will have to remember that this is a table taken from an actual situation so it will have premium to deal with. If you learned your lesson above when I discussed premium, you should have no problems with this.

Here are a few sites that you should check out and study.
1. http://www.cboe.com/delayedQuote/QuoteTable.aspx - This is the Chicago Board of Option trade site. This link will bring you right to the option’s quote page. All you do is type in the stock symbol and the options that are trading for that stock will come – PUTs and CALLs. You should also go to the home page of this site as it has a plethora of information and education material that will benefit you greatly.
2. http://finance.yahoo.com/?u - This is the Yahoo Finance site. Type in the symbol of the stock you want to review. Once the information for that stock comes up look on the left side of the page. You will see an option link. Click on the link and it will take you to the option’s quote page.

Remember I told you that not all stocks have options. The way you find out which ones do and don’t is very simple. Go to either site and look for the options on a particular stock. If the stock does not have options, the site will tell you.

This is enough for one session on option trading basics. You can move on to the advanced options later. For now, read and work with this information over and over until you are comfortable with all the concepts. Make paper trades for a couple of weeks. Paper trades are pretend plays in which you write down all the information as if you were actually trading. Once you get a good feel for your paper trades, you can test your knowledge by making a few real option trades. You will have to get set up with your brokerage firm to be eligible for option trading. Your broker will tell you what the requirements are and what forms need to be filled out. I would definitely start by trading only one contract per play until you feel completely confident. Remember, following a proven strategy such as the strategies published on this site is the best way to success.