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Options Trading
An option is a financial derivative that gets its value from another underlying asset. The option is a contract that grants the holder of that contract the option to purchase or sell the underlying asset at a fixed price before a set date. The contract is purchased for a premium, or fraction, of the price of the related asset. The premium value changes as the price of the asset changes and as the time limit, expiration date, of the option approaches. Options can provide great opportunities in speculative trading. The leverage offered in an option can create far greater profits than from trading the underlying asset itself. These higher profits can come at higher risks, but due to the nature of purchasing an option at a premium, and the fact that the option contract does not obligate the holder of the contract to making the trade at expiration, the only risk is the premium paid for the option.
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