Sponsored Post: "What Are Stock Options and How Do They Work?

A few weeks ago, I was contacted by the folks at onetwotrade.com. Their company works with binary options and they wanted to make some information available to everyone here in Turdville. Please take a few minutes to read this post.

I thought this might be helpful simply because I've gotten a lot of questions lately about options and how they can be used to hedge against sharp moves in the metals and miners. The information below helps to explain how options work but also directs you to check out the onetwotrade.com website.

I hope this helps to answer some questions.


What Are Stock Options and How Do They Work?

Description: Have you always wanted to ask, “What are stock options?” If so, this article will cover the basics of what they are and how they work.

If you’ve ever asked, what are stock options?” and found yourself more confused after getting an answer, you’re far from alone. Options can be a complicated subject once you start getting into the intricacies of various trading strategies and the systems that use them. That being said, they can also be very easy to understand too when explained the right way.

What Are Stock Options?

You’re probably already aware of how trading stocks work. If you think a stock will be worth more in the future, you buy shares in the company and hope the price goes up. With options, you’re still betting on the price of shares moving, but you can benefit from them going up or down.
Furthermore, you’re also not buying a piece of the company, per se. Instead, you’re buying the option to do so (or to sell) at some point in the future. Basically, someone is saying, “Would you like the option to buy 100 shares in Acme Co. at $50.00 apiece in three months? If you do, it will be a $3 premium, which means $300 ($3 for every share).” Then you’d want to look at the stock and see whether or not you think it would make sense to spend $300 now for a chance to potentially buy them for a lot more later on. You could also be sold the option to sell them.

Trading Options Costs Less

As you may have gathered, trading options costs a lot less than investing in stocks. Again, because you’re not buying shares in a company, you don’t spend as much. Nonetheless, you can still profit from a company’s stock price increasing just like you would if you owned shares.
Better still, the hypothetical contract outlined above—just like all options contracts—detail exactly how much you’ll be risking for how much reward you may receive. They even tell you when the contract is up.
When you trade stocks, you have no idea how much you could make, meaning you might sell early. You could also wait years before it becomes profitable to sell a stock. This can cost you dearly as it ties capital.

Make Money in Any Market

The other great thing about options is that you can potentially make money in any market. If you think a company’s stock price is going to go up, great. However, you could just as easily make money with a contract that bets on the company’s value falling. You could even bet on it staying stagnant. One of the reasons so many people are asking, “What are stock options?” is because so many who trade them made  it through the recession with more money than when it started. There’s no bad market when you invest in options.

Although they come with a number of advantages, it’s important you do your research before getting involved in options. As long as you do, though, it can provide serious returns in a short amount of time.


Orange's picture

ANV First


Still too upset to read, so I will be back later.

Search's picture


Not your best post. Binary options are the status quo at its finest. The fact that  the article does not even mention volatility as an asset class, as that is the asset they value trade, I believe is false advertising. Easy leverage, easy blow up if your short and slow death if your long, if you do not know what everyone else is doing.

if I am not mistaken it was the Barclays guy that pushed a binary option through the strike that got caught in the gold fix. Enough said.

alivecatbounce's picture

Turd ...

"it can provide serious returns in a short amount of time." OK . Sounds like get rich quick BS. On their site with one of the adds says : "You can make a 80% profit in a matter of minutes with binary options. " COMPLETE AND UTTER BS . 

They are not interested in educating people on options. THEY WANT YOUR MONEY . 

If you understand the reality we live in , understand how the markets work as an extension of the collective human mind that is cyclical , you can EASILY predict the FUTURE and you do not need to SELL ANY SERVICE to become rich . You can do it for the fun of it , for free or maybe advice close people you love to make money with you , you do not SELL something . 

Just another casino where the house always wins and the gullible lose all the fucking time .

silver66's picture


fourth and I get to harvest some capital losses sad

SS121 was right


amarula4's picture

IMHO, this is very fair and factual, as far as it goes...

but it does not really explain the 'magic' of shorting being the implied stock loan to enable the sell if required, or the fact that online trading accounts are really a virtual window into these actual stock positions, as they enforce a cash only simulation of your account. The greatest danger of these accounts is the possibility of losing more than you initially put into your account if the market moves against you, short or long, as you are entering into a contract that does not limit your losses unless you put the appropriate stop loss into your trades - which of course is a matter of considerable judgement and timing. Caveat emptor.

Dr Jerome's picture

condors & butterflies

Well, everything in the article is accurate from my experience, but there is soooooo much more to it.

I agree about the voliatility, Search.

There are three components that go into an option price:

  • the strike price
  • time remaining til they expire
  • implied volatility

My stock classes did not teach me about the volatility. The volatility is what used to eat up my account until I learned to make it work for me. But then I quit trading.

You can lose everything you invest with option trading. With physical and stock (not leveraged ETFs), price moves down but you don't get totally wiped out.

If a person only uses options to hedge for the smackdowns, it can work. The sharp moves push the volatility component of the price equation higher and adds to your gains as price moves in your direction.

Another problem is that options trading is from 9:30 to 4pm. You stand by helplessly and watch the overnight action, unable to get stopped out, unable to take gains off the table.

If I were to hedge my stack (which means refunding my trading account) I would do one of two things: Buy "at the money" AGQ puts just as we are expecting a large beatdown or a rally "cap and correction." Or, I'd refund my account with Jim Commisky and buy /SI or /AU put options just before an expected price takedown.

But I have sworn off most trading for now. But if someone goes this route, be disciplined, limit your trading funds, and hedge to the downside.

SteveW's picture

Option to sell

I can understand TF posting this "puff" piece after so many have asked questions about hedging. There is so much more involved though that those particular members deserve much more from our community than what's posted above.

JY896 posted more sources and I suggest that those interested look at http://www.optionistics.com/f/option_calculator to at least get some idea of the many parameters involved.

Dr J. posted some additional issues.

amarula4 talks about borrowing stock to short and so IMHO even a sophisticated member has been misled by this piece. I would never advise a novice to short stock as the potential loss is unlimited. IMO the sentence "You could also be sold the option to sell them" refers to the purchase of puts as an option to sell.

The piece doesn't even use the words puts and calls and only considers purchases and not writing. I believe that generally those that write options make the money and the purchasers tend to lose. Writers need to be well capitalized while the purchasers are essentially gambling hoping the payoff on one big score pays for 9 losses.

gazzmann's picture


Thanks for the info Turd. And thanks to all for the pro/con opinions. Be careful out there!

SS121's picture

To the fine folks at OneTwoTrade

If you're reading these comments to your sponsored post and wondering "what in the wide world of sports is going on at this place?"... don't take it personal, it's not you!

The global system in which your markets exist is in the process of going Tango Uniform.  Accordingly, most here are moving out of the system and into Silver and Gold and therefore find the suggestion of jumping back into the chaotic minutia of the dying system's "markets" to be a little nauseating.  

Consider it an awkward invitation ("Welcome!") to stick around and learn how to best position yourselves, as the world's binary monetary situation completes it's transition back to Silver and Gold.

Working at OneTwoTrade no doubt keeps everybody's head so buried in charts, regulatory crap, marketing, and general system 'noise', that none has the slightest clue as to what is going on in the monetary world.  So again, please continue to visit this site and you'll be on track in no time!! 

TFMR is like a one stop shop for excellent Silver and Gold retailers, information on how to get out of your system 401k and other 'funds' ...and probably best of all is the experience and wisdom of Turd and the TFMR folks that will help you get past all the residual mental obstacles picked up during your life spent in the system.  You'll be back to your fun, human, stacking selves in no time!!smiley 

This is the place to be...

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