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What is options?
We must use an example. Say, you came to the store to buy vegetables and suddenly saw the audio system of your dreams. Now, in the perfect world that you are taking. But in the real world you a) have no money at the moment and b) have a spouse who must approve first.

So you ask the landlord to keep the audio system and not sell to anyone until you return home, solve the problems of the real world and return with money. And the owner says "no".

Due to its point of view, it is a financial risk you are asking him to take. And if the real world problems are not solved? What if you can not return with the money?

And then you are corrupt. Here. Take this twenty dollars. If I come back, you count the money in connection with the payment. And if you do not? -- The owner is not clear yet whether this is not a trick. -- And if not, you keep that money.

OK, the owner said. For that money for the audio system will be "waiting" for a day.

That's it. For a small (or large) deposit that you just bought an option (right) to buy the audio system.

Why do we need options?
There are some advantages to using options or similar techniques. The reason described above (I have no money but I expect to do) is not the most important.

You can use options to ensure the price of a purchase. Say you buy a house. And the price is 100000 and, of course, you did not. But you are sure you can - if you go to your bank and take a loan. But what if the time to leave, the other guys in motion and offers 120000?

To avoid this situation you can offer to the house owner to sell you an option to buy this house within certain period of time (days, weeks, months, 6 months) for a sum of money (one dollar, $ 200, 1000 dollars). You put in writing and the price is guaranteed.

And then the property market goes down and the house is now $ 90000 ... So you can abandon the option - you do not have to buy anything! Or better - you can make another offer the same seller!

It is therefore a technical advantage of price changes with little risk! Think of the house above example. If you anticipate that the property market is about to go, you want to buy a house now. But if the market will remain rather - you lose a lot of money. However, if instead of buying the house of $ 100000 you buy the $ 1000 option ... You lose a lot less and you win (if the prices up) the same.

BOURSE
It is of course much the same image with options for real estate, but follow the example above are not realistic. Now we are talking about Stoks Options.

Once again: for small down payment you can buy the right to buy or sell stocks at a fixed price. All you have to do is to research and stock to decide (for you) how the change will happen.

Then you buy or sell options. For stock options are under way in lots of 100 shares each lot.

The right to buy shares of stock at a fixed price within specified period (1, 2, ... months) is called an option to purchase. If you want this right, you have to buy a call.

If you want to sell shares at a fixed price (you think they are down) then you need to sell a call, which means that you promice to someone (the person who buy from you) you're going to sell these stocks at a fixed price whether (if known).

Now, there is a risk - if you sell a call for a lot (100 shares) at $ 100 and the stock fell to $ 1 per share? To cover that risk, you can write a covered. This means that you have a stock in your account, so you do not have to buy for $ 100 to sell it for $ 1.

How can we use this technique for profit?

Let's say we have a Microsoft shares (MSFT). 100 of them. We believe it is not up dramatically, but it will not fall. We write a covered for a month for a lot. This means that we can not sell MSFT for a month - they are a sort of security deposit.

Now, for this action we immediately get money - the price of an option. It is ours and nobody will take us. Then, a month later, two things will happen - May MSFT grow above the price that you wrote a call for (for example, you wrote an appeal for $ 100 and it is now $ 103), so you receive a call the other person and your actions are his actions. You have $ 100/share and that you pay the price of the option that you got at first.

Or if MSFT has not grown up (just as you expect), you keep the shares and the price has been paid for the call. And you can sell the same shares!

And yet.

Terminology.
Let's get clear with the terminology. If you want to have the right to buy - it is called buying a CALL. If you want to sell the right to buy (you) to someone else, it would be SELLING AN APPEAL.

Now, if you want to have the right to sell, he is buying a PUT, and if you want to give someone the right to sell (for you) - You sell a put option.

Risks.
The reward, the greater the risk. The options are a big leverage (5-10 times your money) and the risk is higher. Say you bought a call for 1 batch of $ 100. As time passes, the share price remains at $ 99.99 - so exactly what you have at the end of the period (the date the option expires)? Nothing. You will lose all the money! On the other hand, if you paid $ 5 for shareholders to buy this option and the price has risen a dollar, you get (estimate only) $ 100 as a profit which is 100 / 500 = 20% profit on 1% price change!

How do you options? First, you need the "account" with your broker. Then you have to buy and sell options. In most cases (unless you use options to management actions because) you do not need to buy and sell the underlying securities - you are only options trading. That's it.