Suggested reading - Options Trading

Options Made Easy: Your Guide to Profitable Trading by Guy Cohen	Successful Strategies without Rocket Science by Lenny Jordan	The Four Biggest Mistakes in Option Trading by Jay Kaeppel	Options as a Strategic Investment by Lawrence McMillan

So, what the heck are options all about?

When i first came across this form of trading i was instantly confused!!
Puts - Calls - Butterflies - Strangles........i mean, come on. Who is going to get to grips with this and feel confident enough to risk hard earned cash? And speaking of risk, this is meant to be one of the riskiest forms of trading available.
So whats the point?

Well, once again before i start i will state the usual - written below are my opinions and you must as always come to your own conclusions before making any trades.

Ok, thats the boring bit done.
Below is a description of the basic elements of options trading.
BUT... even i am finding this form of trading is taking some "sinking in". So on the right-hand side of the webpage are a few online tutorials, that explain in very good detail the in's and out's of options and the different stratergies. There are even little questionaires at the end to test you. Good luck!!

Note from a visitor Options clearly need full understanding. Below is a comment made from a reader who deals in options and his experiences would be worth learning from. Matt, Most brokers will only buy options for clients, this is because the risk is low and you could ONLY loose the premium paid,there is NO margin charged. However, when you start writing/spreads there will be margin charged on this type of positions. The margins are priced AFTER the positions are filled. The cost of the margins will be told to you the next day by your broker. The clearing house will tell the broker by 8am.Then the broker will add a % on top. This is why most brokers will NOT open an account for less than £5000 if U are going to write/spreads. I dont recommend you buy options[puts or calls] as 85% of these options WILL expire WORTHLESS. The people that make money consistently are the writers. It took me many yrs to work that out. I lost a lot of cash when I was a buyer, but at the same time I've learned a lot from the experience. Please tell your readers to papertrade for at least 3 mths other-wise they WILL loose their dosh. Contact LIFFE they will send U a lot of free materials on options they will send U a list of option brokers. I am happy to share my knowledge with your readers in a small hall here in London. Remember if options are used correctly they are low risk. My advise to your readers is be patient and learn options before you dive in. JohnReply to this comment, or ask John a question here

Options are the most versatile trading instrument ever invented. Since options cost less than stock, they provide a high leverage approach to trading that can significantly limit the overall risk of a trade or provide additional income. Simply put, option buyers have rights and option sellers have obligations. Option buyers have the right, but not the obligation, to buy (call) or sell (put) the underlying stock (or futures contract) at a specified price until the 3rd Friday of their expiration month. There are two kinds of options: calls and puts. Call options give you the right to buy the underlying asset. Put options give you the right to sell the underlying asset. It is essential to become familiar with the inner workings of both. Every strategy you learn from this point on depends on your thorough understanding of these two kinds of options. There are no margin requirements if you want to purchase an option because your risk is limited to the price of the option. In contrast, option sellers receive a credit in their account for selling an option and get to keep this amount if the option expires worthless. However, option sellers also have an obligation to buy (put) or sell (call) the underlying instrument if their option is exercised by an assigned option holder. Therefore, selling an option requires a healthy margin. To trade options, you must be acquainted with the select terminology of the option market. The price at which an underlying stock can be purchased or sold if the option is exercised is called the strike price. Options are available in several strike prices above and below the current price of the underlying asset. Stocks priced below $25 per share usually have strike prices at 2 ½ dollar intervals. Stocks priced over $25 usually have strike prices at $5 dollar intervals. The date the option expires is referred to as the expiration date. A stock option expires by close of business on the 3rd Friday of the expiration month. All listed options have options available for the current month and the next month as well as specific future months. Each stock has a corresponding cycle of months that they offer options in. There are three fixed expiration cycles available. Each cycle has a four-month interval: January, April, July and October February, May, August and November March, June, September and December The price of an option is called the premium. An option's premium is determined by a number of factors including the current price of the underlying asset, the strike price of the option, the time remaining until expiration, and volatility. An option premium is priced on a per share basis. Each option on a stock corresponds to 100 shares. Therefore, if the premium of an option is priced at 2, the total premium for that option would be $200 (2 x 100 = $200). Buying an option creates a debit in the amount of the premium to the buyer's trading account. Selling an option creates a credit in the amount of the premium to the seller's trading account: Example: Jane wants to buy a house. After a few weeks of searching, she discovers one she really likes. Unfortunately, she won't have enough money for a substantial down payment for another six months. So, she approaches the owner of the house and negotiates an option to buy the house within 6 months for $100,000. The owner agrees to sell her the option for $2,000. Scenario 1: During this 6-month period, Jane discovers an oil field underneath the property. The value of the house shoots up to $1,000,000. However, the writer of the option (the owner) is obligated to sell the house to Jane for $100,000. Jane buys the house for a total cost of $102,000-$100,000 for the house plus the $2,000 premium paid for the option. She promptly turns around and sells it for a million dollars for huge profit of $898,000 and lives happily ever after. Scenario 2: Jane discovers a toxic waste dump on the property. Now the value of the house drops to zero and she obviously decides not to exercise the option to buy the house. In this case, Jane loses the $2,000 premium paid for the option to the owner of the property. How Options Work Review Options give you the right to buy or sell an underlying instrument. If you buy an option, you are not obligated to buy or sell the underlying instrument; you simply have the right to. If you sell an option and the option is exercised, you are obligated to deliver the underlying asset (call) or take delivery of the underlying asset (put) at the strike price of the option regardless of the current price of the underlying asset. Options are good for a specified period of time, after which they expire and you lose your right to buy or sell the underlying instrument at the specified price. Options when bought are done so at a debit to the buyer. Options when sold are done so by giving a credit to the seller. Options are available in several strike prices representing the price of the underlying instrument. The cost of an option is referred to as the option premium. The price reflects a variety of factors including the current price of the underlying asset, the strike price of the option, the time remaining until expiration, and volatility. Options are not available on every stock. There are approximately 2,200 stocks with tradable options. Each stock option represents 100 shares of a company's stock.