Options Trading for the Institutional Investor: Managing Risk in Financial Institutions

2. Option Basics

The biggest hurdle in the options market is terminology. This chapter explains the basic concepts and defines option terms, introduces call and put strategies, explains how long and short positions work in both types of options contracts, and provides an overview of the options market.

Typically, books about options start by showing how you can leverage a small amount of capital to make fantastic profits, often in the triple digits. Such books tend to quickly become overly technical and complex, so you end up with two problems. First, you are exposed to the proposition that you can get rich by speculating in options. Second, the discussion becomes obscure as the details emerge. In both aspects, the question of risk is not often ...