The 6-Week Options Trading Kickstarter: What Are Options, and Why Should We Care About Them?
Steve Smith breaks down the basics of options trading.
Editor's note: To help investors get their feet wet with options trading, Minyanville has launched this "6-Week Options Kickstarter," an educational series aimed at increasing understanding of the basic nuts and bolts of options. In this series, veteran options trader Steve Smith will take you through options fundamentals with an emphasis on real-world applications. Note: Intermediate or advanced-level traders may get more mileage out of Minyanville's 9 Weeks to Better Options Trading series.
Knowledge is good.
-- Emil Faber
Even as stock-trading activity continues to decline, the popularity of options is on the rise.
Average monthly trading volume in stocks was 6.5 billion shares through the first half of 2012 -- nearly 50% below the 12.2 million shares per month average seen in 2008.
Meanwhile, options volume has increased by an average of 19% in the past six years, and with good reason.
The development of electronic trading platforms and the decimalization of options have greatly lowered the cost of entry for retail options traders. In addition, we have seen an ever-expanding choice of products, such as options on ETFs like the Spyder Trust (NYSEARCA:SPY), which only launched in 2005 due to licensing issues, and weekly options on names such as Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) have provided an ever-expanding selection of options to trade.
The increase in options trading volume has not gone unnoticed by the major online brokers. TD Ameritrade (NYSE:AMTD), and Schwab (NYSE:SCHW) have expanded their options platforms through their respective acquisitions of ThinkorSwim and OptionXpress, and offer a growing range of educational tools and resources.
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