Introduction to Stock Options

Stock options can be risky and expensive, so why trade them? Because they are versatile securities that fulfil many objectives — improving portfolio growth, protecting assets, limiting risk, leveraging capital, and outright speculation. Used well, options can produce a profit whether the market moves up, down, or barely at all.

It is common to think of options as inherently risky investments. While they certainly can be risky, they can also be used to hedge against loss, thereby reducing risk.

The objective of this tutorial is to provide a basic understanding of stock options, explain how they are typically used, show how market factors affect option pricing, and explain how option activity can signal stock-price movement.

We cover popular strategies such as covered calls and protective puts, as well as more complex strategies such as spreads and straddles.