Option Investor
Educational Article

Options Are Versatile

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Options are versatile; they offer a variety of profit opportunities to a range of investors. However, this unique quality does not mean options, or options trading strategies, are easy to comprehend. Indeed, history suggests only sophisticated market players utilize derivatives effectively on a regular basis. These traders differ from the masses because they are completely aware of the risks and obligations of options as well as their ability to generate exponential gains. More specifically, they understand a few key concepts such as: how options are valued and what factors affect an option's leverage; which techniques work best, given a specific timeframe and outlook for the underlying market; and when to avoid a particular strategy, due to excessive risk. Today's narrative will focus on the first topic in that group and we'll begin with a brief primer on option pricing.

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