Stock option trading is a lesser known trading strategy, although most investors are familiar with stock options. Stock options give the owners the right to sell or buy a particular underlying security at a specified price, within a specified time frame. Unlike futures, the option owner does not have the obligation to buy or sell the underlying security.

One of the most important stock options strategies is to choose the right underlying security. If you believe that the underlying security is going to increase in value, you would buy a call option. If you believe that the price of the underlying security will go down in value, you would buy a put option.

If the underlying security goes above the strike price for a call option, it is said to be in the money. If the price of the underlying security goes down for a put option, it is said to be in the money.

Research and analytic tools are essential to help an investor to choose the best underlying security. When you pre-select criteria for purchasing options, it makes it easier and less emotional to choose investment options. Also, before you begin investing into options, it is also wise to choose a direction- are you going to primarily choose securities that you believe are going to increase in price or decrease in price.

While some options traders use both put and call options in their overall strategy, many find it more effective to concentrate on a single type of strategy. Then, they search for securities that meet their criteria only.

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