An Introduction to Options Trading

INTRODUCTION

Over the years derivative securities have become increasingly important. Examples of these are options, futures, forwards and swaps. Although every derivative has its own purpose, they all have in common that their values depend on more basic variables like stocks and interest rates. This book is only concerned with options, but once the theory behind options is known, knowledge can easily be expanded to other derivatives.

This book has three objectives. The first is to introduce terms commonly used in option theory and explain their practical interpretation. The second is to show where option traders get their profit and how these commonly used terms relate to this profit. The last objective is to show why companies and investors use options to satisfy their financial needs.