OPTIONS BASICS

Options Basics

Options trading can be a complex endeavor for those who are new to it. It’s important to get the basics down–what options are and how they work. Some strategies have limited risk while others have unlimited risk. It’s important to know the difference and whether either approaches match your financial goals and risk tolerance. Fortunately, we have a series of short videos (courtesy of Khan Academy) to help you get acquainted with options.

CALL OPTIONS

American Call Options – what is a “call” and how does it work?

SELLING OPTIONS

Going Short on Options – do this and you may be exposing yourself to unlimited risk.

CALL PLAYOFF DIAGRAM

Call Payoff Diagram – how and at what point will your call option payoff?

PUT OPTIONS

American Put Options – what is a “put” and how does it work?

PUT VS. SHORT LEVERAGE

Put vs. Short Leverage – an outright short sale exposes you to unlimited risk, but “buying” a put will not.

CALL OPTION AS LEVERAGE

Call Option as Leverage – how does an option’s leverage differ from an outright stock purchase?

PUT PLAYOFF DIAGRAM

Put Payoff Diagram – how and at what point will your put option payoff?

The risk of loss in the trading of stocks, options, futures, forex, foreign equities, and bonds can be substantial and is not suitable for all investors.Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Trading futures, options on futures, and forex involves substantial risk of loss and is not suitable for all investors. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources and only risk capital should be used.Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk. Past performance is not necessarily indicative of future results.

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