"Stock Option Trading" an option trading is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying stock at a specific price on or before a certain date. An option trading is also known as Stock Option Trading. Buying of options is called "Call Option" and selling is termed as "Put Option".

In Stock Option Trading value of call or put is determined by underlying formula in the contract. The price at which an underlying stock can be purchased or sold is called the strike price. This is the price a stock price must go above (for calls) or go below (for puts) before a position can be exercised for a profit.

All of this must occur before the expiration date. The total cost (the price) of an option is called the premium. This price is determined by factors including the stock price, strike price, time remaining until expiration (time value) and volatility.An option that is traded on a national options exchange is known as a listed option. These have fixed strike prices and expiration dates.Currently, there are six exchanges in USA which lists standard option contracts. They are :

The Philadelphia Stock Exchange (PHLX)

American Stock Exchange (AMEX) in New York City

Pacific Exchange (PCX) in San Francisco

Chicago Board Options Exchange (CBOE)

The International Securities Exchange (ISE)

Boston Options Exchange (BOX).

In the europian market it is traded through Euronext.liffe and Eurex.

There are two main types of options:

• American options also called binomial option model can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are of this type.
•  European options also called Black-Scholes Model are different from American options in that they can only be exercised at the end of their lives.

It is very difficult to ascertain the volatility factor in estimating the future value of a stock. People tend to look at the marketplace to know more about implied volatility of an option.Consider the following before entering stock option trading.Premium earned against the risk involved.Option trading requires quite a good liquid cash. Make sure you have ample liquid fund available to play with market volatility.

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