If you are interested in trading options contracts but do not know where to begin, this blog post is for you. Options trading is a complicated market that can be intimidating for beginners. In this article, we will go over the basics of what options contracts are and how they work so that you can get started with trading options!

What are options contracts?

Options contracts are a type of stock market transaction in which you purchase the rights to buy or sell a stock at some time in the future for a specific price. To purchase the contract, you pay a premium and can then choose to exercise your rights under the options contract at any point before its expiration date.

Types of option contracts

• Call options give the holder of the contract a right to purchase an underlying security for a set price, or strike price. When you buy call options you are betting that the value of the underlying stock will rise in order to make a profit off your investment.
• Put options give holders rights to sell an asset at a specified price by expiration date and so are betting that the price of an underlying security will fall. When the price of the stock falls, the value of the put options contract increases, resulting in profit.

How to trade options contracts

To get started trading options contracts, you will need a brokerage account. For a beginner, we recommend Ally Invest.

The three steps for buying call options:

• Decide whether you want to purchase puts or calls and if you want to buy options on a particular stock.
• Decide how many contracts to buy and the contract’s expiration date (remember, you can’t lose more than what you invest).
• Place your order with Ally Invest or another broker of your choice. After that, all there is left to do is monitor the market for changes in price!

Full Disclosure: Cash Hints always strives to write accurate reviews and articles. While we may receive compensation from affiliate relationships of the companies we link to, those relationships do not impact our reviews or positions. We always strive to provide high-quality and honest content for our readers. View our full disclaimer for more information.