Options Trading: The Basics

By Patricia Uceda, Spring 2015 Graduate Research Assistant

In an effort to educate investors about options trading, the SEC has released some information about the basics of options trading, including what they are, potential risks, and how to open an options account. For the next couple of posts we will be focusing on options, starting with the basic question today of what exactly options are.

What are Options?

According to the SEC, “[o]ptions are contracts which give the owner the right to buy or sell an underlying asset at a fixed price and on a fixed date.” The underlying assets can be any type of financial asset, including, as the SEC notes, “stocks, stock indexes, exchange traded funds, fixed income products, foreign currencies, or commodities.” Option contracts are traded in many different types of securities marketplaces.  All sorts of investors, whether institutional, professional or just regular individual investors, might trade in options.

In our next post we will talk about some basic options terminology that may be useful to you if you decide to invest in options.