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Introduction to Options Essentials

Lesson 1 of 7

Duration 2:20
Level Beginner

Investing in financial products involves risk to your capital.

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What are options?

Options are a financial derivative instrument; all rights belong to the buyer and all obligations with the seller. Call options give the buyer or holder the right but not the obligation to buy the asset they are derived from at a fixed price by a set date. Put options give the buyer or holder the right but not the obligation to sell the asset they are derived from at a fixed price by a set date.

How are options effectively used?

Options have many uses in an investment portfolio. Options may be used for the hedging of a particular position to cover risk on the upside or downside or overall risk management of a portfolio. Options can be used to generate income by selling covered calls or puts. Options may also be used for speculation, using leverage to potentially profit on a directional move, or depending on the trade potentially profit on the price of the underlying remainig relatively flat.  This course is designed to demonstrate some of the practical use of options for these purposes through examples and explanations.

 The course will also cover important option related topics:

  • open interest and what it signifies for an option strike,
  •  exercise and assignments, what they are and why options are sometimes exercised prior to expiration, and
  • the clearing house’s role in ensuring all U.S. option trading obligations are fulfilled in a safe and efficient manner.

After taking the Option Essentials course the viewer will have a better understanding of the role options can play as an important part in their overall portfolio as well as have a better understanding of options in general.

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For information on the uses and risks of options read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD). Multiple leg strategies, including spreads, will incur multiple transaction costs.

Disclosure: Options (with multiple legs)

Options involve risk and are not suitable for all investors. For information on the uses and risks of options read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD). Multiple leg strategies, including spreads, will incur multiple transaction costs.

Disclosure: Multiple Leg Strategies

Multiple leg strategies, including spreads and straddles, will incur multiple commission charges.

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