Options Basic

1 What is an option?

An option is a contract between a buyer and a seller. It gives the buyer (the owner or holder of the option) the opportunity to buy or sell the underlying asset at a specific strike price prior to or on a specified date. Options can provide investors with more opportunities than traditional equity buy/sell strategies.

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2 What are the advantages and risks of options?

2.1 Options are cost efficient with great leveraging power. An investor can obtain an option position similar to a stock position without actually trading the stocks themselves, but with much more volatility risk.

2.2 Options are a popular way to hedge your positions. However, when not properly understood by investors they may pose a high risk of loss.

2.3 Options have the potential to deliver higher percentage returns and losses.

2.4 Options provide a strategic alternative to investing in equity. There are many ways to use options to recreate synthetic positions; however, there are many risks associated with trading options and we suggest to do a lot of research before trading options.