I have experience with and have studied the Forex Market. Below is an excerpt of a financial article that I wrote:
Stock options gained popularity in the early 1970s with the standardization of option agreement terms. This was meant to offer traders a means to mitigate risk in volatile markets. Many people have the impression that trading options is dangerous. That's not necessarily true, however, potential options traders must understand how the this market operates. Options are part of the derivative market, meaning their value is determined, or derived, by something else. As, with any market, there are two sides to the option market, buying and selling.
Buying: Call Options
Call Option agreements give buyers the right to purchase stock at a certain price, the strike price, by a certain date, the expiration date. The fee the buyer pays in order to have the right to buy the stock at the agreed price by the specified date is called the premium. The premium is determined both by strike the price relative to the current trading price and the length of time covered in the agreement. If the option is not exercised before the expiration date, it becomes worthless. Call options make money when prices rise.
Selling: Put Options
Put Options give sellers the right to sell their stock at a specified price, again called the strike price, by a predetermined date, called the expiration date. Put option fees, or premiums, are determined by the intrinsic value (determined by...