Option Buying is as simple as sports betting. If you understand this simple logic in a couple of minutes, you are in business.

Winners: You bet on Bulls which means you think the market is going to go up. You just buy a call option and pay a fixed price. No matter how deep the market dips, you owe nothing to anyone except what is already paid for the purchase of the call option. Theoretically, you can make unlimited gains if the market goes up. In reality, you have to be content with realistic profits.

Losers: Your bet on Bears thinking the market is going to go down. You just buy put option and pay a fixed price and no matter how up the market goes, you owe nothing to anyone except what is already paid for the purchase of the call option. Again, theoretically, you can make unlimited gains if the market goes down. But in reality, you have to be satisfied with realistic profits.

So far so good. Now you will ask two simple questions:

• How do I know when will the market go up or down ?
• How can I measure what is supposed to be realistic profits?

In order to get answers to these simple questions, you have to spend anywhere from 2 years (if you have a mentor to guide you) and 10 years (trial-and-error basis) practicing trading of options in order to acquire essential skills mostly related to understanding the influence of psychology on the behaviour of investors, playing the probability game, managing risks and money, studying the methods to measure the entry and exit points and get in or get out in a realistic way.

This knowledge comes from practice of simulated and live trading. Just like any profession you need certain skills and need to gain experience. Options trading is no different from it.

Pros

• Huge Leverage extended by the exchange (not by the broker). It can vary from 100% to 2000% depending on the option strike, expiry date and implied volatility.
• Absolutely no borrowing costs
• No margin call
• Unlimited stop loss chances
• You will not lose even a cent more than you have paid for buying the option come what may be.
• Don't need deep pockets.

Cons

• Taming Theta (time decay) Tiger is really really Tough

We have all heard of options.

Options sound complicated. But in reality, it is not so as long as you don't get trapped in deciphering its ridiculous jargon and strategies. If you come across terms like Butterflies, Iron Condors, strangles and straddles, just ignore them. You really don't have to know beyond the basics, all of which have been covered under the Essential Terms to know section.

Options are simple and are used both by speculators and non-speculators for hedging, protection, leverage etc.

As a speculator, you can just buy a single FX option online ( say EURUSD pair), pay your premium (for as little as 10 points or $125) and control a contract worth $125,000 without investing in the kind of margins you need to trade Sport Fx or Currency Futures - 5% margin or $6,250 (n case of Hong Kong investors) and 3.33% or $4,125 that Europeans pay to their brokers as margin.

If you don't have any bias for the market direction, why should you face psychological pressures caused by fluctuating "Mark to Market" Margin and the threat of Margin Call. If the market favours your selected direction, you make the money. If not, you lose the premium but are not committed to the trade as you would be with a spot fx or currency futures or forwards position.