Trading in the stock options market can be a very lucrative way to make a living, but it is also a place where many people lose their hard earned money very quickly. What exactly is an option? An option is defined as a contract that gives the buyer the right to buy an underlying asset at a specific price or before a certain date. The buyer has the right, but has no obligation. There are two types of options, calls and puts. Calls give the holder the option to buy a stock at a certain price within a specific period of time. Puts give the holder the right to sell an asset at a certain price within a specific period of time. Put more simply, if someone buys a call they are hoping the stock price will increase substantially before the option expires. If someone buys a put they are betting that the stock price will go down substantially before expiration. Options are derivatives because they derive their value from an underlying asset, the main company stock.

What kind of benefits does options trading have? Trading derivatives and options gives you a great amount of flexibility and the ability to hedge your bets more than just a common stock does. What downfalls do options have? Options are extremely speculative and are far more risky than a normal common stock. In many cases if the common stock moves in the opposite direction you are hoping for it to move, your option may be worth virtually nothing when the expiration date comes.

The bottom line is that the everyday consumer has no business being in options trading. Options trading is only for those professionals who have mastered the market to a point that they can feel comfortable taking on so much risk. For everyday individuals such as you and I, options involve far too much risk and are not a good way to invest your hard earned money.