2. What Are Stock Options?

Bottom Line

Options aren’t the most complex derivatives in the trading world, but understanding how they move in relation to their underlying stocks can take time to learn.

There’s a reason brokers limit the amount of options trading that newbies can perform – options involve leverage and making a mistake can cost you more than the value of your account.

Writing options is an advanced trading strategy not suited for those without experience or sufficient risk appetite.

Buying options involves less risk, but the volatility of derivatives might make certain traders uneasy.

However, if you’re a confident trader who wants to increase leverage without using margin, options can provide an avenue for the outsized profits you’re looking for.

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