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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.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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