There is more potential with option trading than with any other form of investment that has ever existed. Because the up-front cost of this activity is lower than that of stock trading, one gets a high leverage means of investing that lessens one's risks significantly and can result in a significant financial gain.

To put it simply, option sellers have obligations, while option sellers have rights. Option trading buyers don't have any obligations, but they do have the right to put or call (sell and buy respectively) any future deals or the underlying stock at a set price until the third Friday of the month it expires in.

There are two kinds of options while doing option trading: calls and puts. Call options give you the right to purchase the underlying asset. Put options grant you the right to sell the underlying asset. It is necessary to become familiar with the inner workings of both while doing stock options trading. Every strategy you learn from this point on depends on your systematic understanding of these two kinds of options.

Consider that there are not any margin requirements to purchase an option - given that the inherent risk in the purchase is limited to the option price. However, selling an option requires that one obtains an account credit and one can keep the credited amount even if the option expires with no value.

Nevertheless, option sellers also have an obligation to buy (put) or sell (call) the underlying instrument if their option is exercised by an allocated option holder. For that reason, selling an option requires a healthy margin. While doing option trading, you must be acquainted with the select terminology of the option market.

A strike price is the buying or selling value of the underlying stock, if that option is exercised. Options are available in many strike prices both above and below the underlying assets current price. The strike prices will typically appear in 2 1/2 dollar intervals for a stock that is priced under $25 per share. The strike prices of stocks priced over $25 will generally appear in $5 intervals.

The expiration date of the option is the last date on which it is active, which is usually the close of business on the third Friday of the listed month of expiration. All listed stocks have options with expirations in the current month, the next month, and some explicitly stated months in the future. Each stock has its options in one of three fixed expiration cycles, each with a four-month indicator. The technical analysis indicator MACD stands for the Moving Average Convergence / Divergence indicator.