INVESTING: Options Trading checklist

Trading options is often looked at as difficult and confusing by people. While options themselves are a bit more complex than stock, trading options is not much more complex.


* Options are bought and sold on an exchange
* Customers will have to sign a separate application to trade options as they are riskier
* Options can be traded on Margin, that is borrowed money
* Options prices tend to be more volatile than stock prices
* Watching changes in the underlying stock will give you an idea of how the options price will change
* Commissions on options are similar to stock commissions
* One options contract is for 100 shares of stock
* Most options contracts are never executed, they are traded until expiration
* Options have an expiration date at which time they are of no value and expired
* Options pricing is made up of intrinsic value and time value
* Time Value represents the value built into the options price for the amount of time until expiration
* Time value declines rapidly as the options expiration approaches
* Intrinsic value is the value of the option based on the underlying stock
* Intrinsic value can vary up and down at any time regardless of expiration

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