by Paul Oranika

Created on: February 25, 2009

Historical Facts About Option Trading

Option trading started in the Chicago Board Options Exchange (CBOE). According to CBOE, the first option contract began trading on April 26, 1973, and 911 Option contracts were traded on that day. There are two types of options instruments, one is called Call Option and the second is known as a Put Option. A call option is a bet that the stock will be worth more than the price set by the option (called the strike price). A put option is a bet that the stock's price will go down below the price set by the option (and often considered much riskier, because there are no limits to how high a price may rise). Option pricing relies on Black Scholes option pricing model developed by two Nobel Peace Prize winners in Economics, Black

Scholes, and Robert Merton. Option investing have increasingly used by Swing Traders to profit from the markets., nevertheless, there is also the risk of losses as with all investments. This article discusses dome option strategies often used by Swing Option traders.

Call Options

Calls are the basic strategy used by most option traders. When concludes through their research that a stock is about to take off in price, such investor can buy call options which are priced in contracts. Option When an investor buys a contract of a call option example IBM, that investor is anticipating that the price of IBM stock will rise above its current prices within the specific targeted date. If such investor's analysis is current, that investor may profit from such investment, nevertheless if the prices declines, the option value will decline as well. This strategy is good for swing trading as well; the good news for the option investor is that it cost much less to purchase an option when compared with outright stock trading.

Put Options

Put options are the opposite of Call Options. When an option investor buys a put option, they are betting basically that the underlying stock will decline in value. When this happens, the value of a put option will increase, and swing traders can quickly lock in the profit by selling their puts. This process may repeat many times over during the course of a day's trading, and an active swing trader may buy the puts again when the stock price rises again. Option swing traders could use technical indicators as used by stock traders.

Naked Call Strategy

Many Option Swing Traders take advantage of this strategy to make money through option trading. When investors are bearish on the price of a

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