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 trading stocks, options, foreign equities, and bonds can be substantial and is not suitable for all investors. Trading on margin is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Day trading is high risk, speculative trading strategy and 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. You are fully responsible for any investment decision you make. Halifax America does not make investment recommendations and does not provide tax, financial, or legal advice.
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