If you have been in stock trading and want to enter into the world of options trading, you will be glad to know the latter is far more attractive and rewarding than the former.

Options trading is the effect of a contract that allows the possessor the right to buy and sell certain quantities of stock and other securities and the purchases hold good only till the expiry date of the contract is reached and the purchases are limited to certain prices. The total cost of options trading is ascertained by factors such as expiry date, asset price, and strike price. In this form of trading, a trader has two options - "calls" and "puts" - before him. These options are the basic building blocks of all possible combinations associated with options trading.

It is worthwhile to note that one option unit is equivalent to 100 units of the underlying stock and a trader can make use of any of them or a combination. Let us read more about the two options (calls and puts) to develop and maintain a clear and complete understanding.

Every call and put must have a buyer and seller and while the option buyer has rights, the option seller has obligations. A call is a kind of contract wherein the buyer gets the right to purchase a certain quantity of stock at a strike price on an expiration date. The seller, meanwhile, is obliged to sell the "promised" stock at the strike price to the buyer. A put, on the other hand, is a kind of contract wherein the buyer has a right to sell the stock at the strike price on the expiration date.

Now that we have read so much about strike price, let us read about this options trading concept. Strike or exercise price is a key variable in a derivatives contract between two parties (buyer and seller). When it is the time to deliver an underlying instrument, the trade will take place at the strike price and there is no influence of the underlying instrument's market price. Strike price, in simple words, can be described as the fixed price at which the owner of an option could purchase (in the case of a call) or sell (in the case of a put) an underlying security or instrument. In other words, strike or exercise price is the price at which the stock will be purchased or sold in case the option to buy or sell is exercised between the involved parties.

A trader needs to be absolutely sure of his foresight and profit strategy before he leaves the demo trading account to get a live trading account. This is primarily because absence or lack of research and practice can make it difficult for him to become successful in the world of options trading. Since options trading does not require huge capital and profits can come easy and big, this is a rewarding option for traders who want to make big money in a short span of time. It is, however, always recommended that potential traders have a clear understanding of options trading basics such as strike price, puts, calls, long positions, short positions, hedging, speculation, and volatility so that they don't end up making the wrong calculations and trading moves.