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Option trading is the most versatile trading instrument ever invented. Since option trading cost less than stock trading, they provide a high leverage approach to trading that can considerably limit the overall risk of a trade or provide additional income.

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.

In order to participate in stock options trading, you must be familiar with the two kinds of options involved in options trading. The two kinds of options differ in what they give you the right to do with the underlying asset. The first kind of option is a "call option," which gives you the right to buy. The second is a "put option," which gives you the right to sell. Knowing and understanding the differences between option types and the way they work is key to every strategy you will learn from here on.

Since your risk is limited to the price of the option, there is in fact no margin obligation if you want to buy an option. On the contrary, option sellers receive a credit in their account when they sell an option and they keep that amount if an option expires valueless.

However, those selling option are required to put (buy) or call (sell) if the option they have is indeed excercised by the holder who is allocated the option. Therefore, to sell an option, one must have a significant margin. Option trading requires that one is knowledgeable about the terminology of option transactions.

Strike price is the value at which an underlying stock can be bought or sold if a stock option is exercised. Several strike prices above and below of the current price of an underlying asset are possible at an option. Strike price interval for stocks valued below $25 is generally 2 1/2 dollar. Stocks over a value of $25 have a $5 interval.

The date the option concludes is referred to as the expiration date. A stock option usually expires by close of business on the 3rd Friday of the expiration month. All listed options have options accessible for the current month and the next month as well as explicit future months. Each stock has an equivalent cycle of months that they recommend options in. There are generally three fixed expiration cycles available. And each cycle is supposed to have a four-month interval. MACD Indicator stands for Moving Average Convergence / Divergence, is actually a technical analysis indicator.

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. There are two opposite ways to do such trading: calls and puts. You must understand the subtleties and challenges of both while doing stock options trading. The technical indicator used most frequently is the MACD indicator that stands for Moving Average Convergence/Divergence.