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really cuts into option trading profits. – conversion to electronic trading from open outcry is helping • Never, ever, use a market order for an option trade. – or you may be real surprised at the price you pay. • Before trading an option, always check open interest and volume for liquidity.

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In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date, depending on the form of the option.

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When the option expires, IBM is trading at $101. Using the same analysis as shown above, the call option will now be worth $1 (or $100 total). Since the investor spent $200 to purchase the option in the first place, he or she will show a net loss on this trade of $1.00 (or $100 total).

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