Stock Option Trading – An Overview

Stock options are options which have stocks as the underlying instrument. Like all options, stock options will have a strike price, the price in which the underlying stocks can be purchased (call option) or sold (put option).

The trading of stock options through exchanges started in 1970’s and became popular in 1980’s. But the market losses of 1990 have caused a halt in stock option trades. Recently the introduction of electronic stock option methods resulted in re-introduction of options to public.

Online stock options trading are comparatively safer to other online trading types. But the initial capital investment needed is often some what higher than others. The major risk involved in stock option trading is you are obligated to trade in the strike price. That is if you want to buy the underlying stocks you have to do it on the strike price even if the actual market stock price is lesser than that. In same way you have to sell a stock at strike price even if the actual stock market price is far higher.

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