Futures and options are investment vehicles that originated among traders of commodities. Commodities can be oils, precious metals, gold, corn, soybeans and timber. Initially, their purpose was to protect companies that used the commodities against future price swings. These days, traders use futures and options as a form of speculation.

Options allow us to control more assets for less cash. 1 option contract represents 100 shares of stock and is usually a fraction of the cost of what you would pay for the equivalent number of shares. With options you can also trade with leverage and you can design strategies for the purpose of generating a regular income.

Options are so flexible that you can profit from declining stocks. Whether the market goes up or down you can place a put or call option and make money.

There are many benefits as you can see from using options. So why isn’t everyone wanting to learn about them? The answer is very likely because options are complex instruments to comprehend and understand for newbie’s. The vast majority of investors who experiment with options lose their money.

One difference between stocks and Options is that like futures contracts, options have expiration dates, while stocks do not. You can hold the stock of an active company for years while an option will expire worthless at some time in the future. Options trade during the trading hours of the underlying entity.

A trader who buys an option will have the right to buy or sell an underlying security or asset, without being obligated to do so, just as long as the follow the rules of the options contract.

A call option is like a trader betting that the underlying asset is going to rise in value. Typically, when the price of the underlying asset rises, the call options rise in price. A put option is the exact opposite of a call option. This is like a trader placing a bet that the price of the underlying asset is going to fall.

Puts are very useful instruments to a trader when they are attempting to safeguard against losses in stock, futures contracts or commodities they already own.