By: Michael E. Martinez

Options give the right but not the obligation to buy or sell a stock at a set price on or before a given date. Investors issue options, not the companies. Investors who purchase call options bet the stock will be worth more than the prices set by the option, known as the strike price. Plus, the price they paid for the option itself. Buyers of put options bet the stocks' price will go down or below the prices set by the option. Options aren't for everyone, you have to know what you're doing or you could either create a small fortune or loose it all. This type of trading is very volatile compared to that of buying and selling common stock.

Options are considered a derivative. A derivative is normally linked to an underlying investment such as options or futures contracts. It specifies the rights and obligations between the issuer of the security and the holder to receive or deliver future cash flows or exchange of other securities or assets based on some future event. All listed options on an exchange are fungible, meaning the contracts are identical on every exchange. If you have an account with a brokerage firm you can't just start trading options. You first have to be approved before you can do so. The rules are in place to prevent you from making trades that might be above your level of risks.

When you trade options, you execute the trades such as you would with stocks; the same rules apply whether its online or by the phone. Also like stocks every time you do a trade, commission is still the killer, the costs vary from firm to firm. Like I mentioned earlier, options trading isn't for everyone, if you love to take risks in your investing and can afford a lost, then it wouldn't hurt to give this a try. If you're new to the markets and inexperienced then I would recommend holding off until you know the risks and understand it, if not then you can always leave it up to a professional. Understanding options is quite a steep learning curve if you want to know the depths of it.