What Is Options Trading?

Options trading allows investors to speculate on a stock's directional move, but there are some key concepts to learn before jumping in.

closeup of person with pen buying and selling stocks online
(Image credit: Getty Images)

By definition, options are contracts that entitle the holder to buy or sell shares of the underlying asset at a specific price by a specific date.

However, many active options traders never plan to touch the underlying shares themselves. Instead, they buy and sell options – sometimes in various combinations known as "spreads" – with the intent of profiting from changes in the premiums of the option contracts.

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Elizabeth Volk
Contributing Writer, Kiplinger.com

Elizabeth Volk has been writing about the stock and options markets since 2007. Her analysis has been featured on CNBC, published in Forbes and SFO Magazine, syndicated to Yahoo Finance and MSN, and quoted in Barron's, The Wall Street Journal, and USA Today.