Stock Option Trading

Stock option trading can be considered as one of the most financially rewarding strategies one can become involved in. Sometimes, this becomes a destructive investment plan, though. Stock option is the right to purchase a stock at a given price within a specified time. Stock option trading is largely dependent on certain factors, such as name of the associated stock, strike price, expiration date, and the premium paid for the option, plus the stock broker s commission.

Stock option trading involves trading standardized options contracts, which are listed by a variety of futures and options exchanges. In the United States, there are presently six exchanges where stock options are traded, including four open-outcry marketplaces and two electronic marketplaces. The open-outcry marketplaces are Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, the Pacific Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE). The International Securities Exchange (ISE) and Boston Options Exchange (BOX) are included in the electronic marketplaces. In Europe, the main futures and options exchanges are Euronext.liffe and Eurex.

Another option to trade a stock is the over-the-counter (OTC) trading, which is the opposite of exchange trading occurring in option exchanges or futures exchanges. The OTCs are traded not in exchanges, but between two independent groups; hence these transfers are the bi-lateral contracts. In this contract, at least one group is typically a large financial organization with a balance sheet big enough to guarantee such a contract. OTCs are administrated by an International Swaps and Derivatives Association agreement.

Stock option trading, with no intent to ever exercise the option, may be considered as a form of leverage . The 'grant' price (the price of an option) on a security might increase over the price of the security itself. For this reason, the entire value of trading in options has at times exceeded the total value of trading in stocks themselves.