Some option trading basics for beginners include understanding what an option is, understanding some of the key terminology such as calls and puts, and understanding volatility, explains TradeKing. Other basics include terms such as going long versus going short and strike price.
Options are contracts allowing the owner of the contract to buy and sell assets at a fixed price during a specific period of time, states TradeKing. The period of time that the owner can buy and sell the option’s underlying assets can range from two days to two years depending on the terms of the option. The strike price and the fixed price stated in the options contract are the same thing in options trading.
“Calls” and “puts” are short for call options and put options, which are the two types of standard options, according to TradeKing. For each call option or contract an investor buys, that investor owns the right to buy 100 shares of securities at specified prices and times; however, the option does not require the investor to purchase the shares in that time frame. The opposite is true for put options, where investors buy contracts that give them the right to sell 100 shares of a particular security during specified times at specified prices.