Options are low risk trading instruments. The option buyer has the right to buy or sell a share at a specified future price before a future date. The right to buy is a call option while to sell is called a put option. The expiration date is the date when the options contract expires. The exercise or striking price is the price at which the buyer of a call can buy the stock. It is also the price at which the buyer of a put can sell the stock. The premium is the price of the option contract. I know this can be a bit confusing but it's explained in a lot more detail over at Fixing Finances.
Options values depend on the current stock price, striking price, time to expiration, stock volatility, interest rates and cash dividends. Option strategies include combinations of call, put, or stock that can be either buy or sell. Buy is also called “go long” and sell is called “go short”. Options give the investor leverage and safety. The holder of the option needs to predict the price movements and also the time frame of the price movements. It is necessary to understand the shares related to the option as well.
Based on the comparison between the striking price and the current market price one can see if the option is at a favorable transaction position or not. Options strategies differ as bear and bull conditions prevail on the exchange. Options are also a kind of insurance.
For the careful investor, options might be the way, to secure that extra, much needed income.
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