What Are Options?

The straightforward definition – an option is a straightforward financial derivative. This legal contract affords you the right to buy or sell an asset during or within a pre-determined date (exercise date). If you are the seller you have an obligation to meet the terms of the transaction. These will be to either sell or buy if the buyer chooses to ‘exercise’ the option prior to the expiration date.

Options for day trading span across numerous markets. You can get stock options, ETF options, futures options, and more. These traditional options are also known as ‘vanilla options’.

What Is An Options Contract?

You’ll be afforded a number of rights with an options contract. Each contract should include details of the following:

Type of option (call or put option)
Underlying security
The strike price (the price at which you can exercise the option)
Unit of trade (the number of shares)
Expiration date (the last trading day for exercising your option)

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Types

Options are often classed as complicated, risky investments, and that puts off many aspiring day traders. However, there are just two main classes of options.

Put – These selling options allow you to sell a stock at a specific price.
Call – These buying options allow you to purchase a stock at a specific price.

Setting aside the two main classes, there is a long list of different markets and options available. Although not all are suitable for day trading, the list includes:

Stock options
Index options
Mini options
Mini Index options
Options on futures
Weekly SPY options
OEX options
ETF options
S&P 500 options
IRA accounts
E-Mini options
ES weekly options
QQQ options
Deep in-the-money (ITM) options
Crude oil options