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Options Trading for Newbies
Issued on August 03 2011 par Strategies Options

Options Trading explained as for kids .
Options are bets on an underlying which can be bought and sold. They provide a way to make profits if

- the underlying moves beyond a particular level (in that case the bet is called a call)
- the underlying moves under a particular level (in that case the bet is called a put)

The underlying can be an index, a stock, a bond, ...and is called a spot.



I - The 'call case' !

Imagine that one is able to buy a call for $3, and that call enables to make profits if a particular stock moves beyond $100.
That leads to :
2D call payoff


the break even is 100+3=$103, level where there is no gains and no losses.

The risk
It's limited to $3. Like a stop order.




II - 'Put case' !

Imagine that one is able to buy a put for $3, and that put enables to make profits if a particular stock moves under $100.
That leads to :
2D put payoff


the break even is 100-3=$ 97, level where there is no gains and no losses.

The risk
It's limited to $3. Like a stop order.


Next : Options Trading For Newbies (part II)
Previous : Glossary

OPTIONS 101 - INDEX
OPTIONS 101 - CHAPTER I
OPTIONS 101 - CHAPTER II
OPTIONS 101 - CHAPTER III
OPTIONS 101 - CHAPTER IV
OPTIONS 101 - CHAPTER V
OPTIONS 101 - CHAPTER VI

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