Options' trading falls under the criterion of complex securities trading. The definition of Options trading is a form of trading where the purchaser has the right to purchase an underlying asset but not the obligation to purchase the asset for a specified price within a specified period of time.

There are two types of options trading. Under the American type of options trading, the purchaser can exercise the option at any time before the expiry of the options contract. Under the European type of options trading, purchasers can exercise their option only on the date of expiry of the contract.

There are two classes of options trading, the 'call' and the 'put'. The 'call' is a class of options trading where the purchaser has the right but not the obligation to purchase the underlying asset at a fixed price within a specified period of time. A 'put' is a class of options trading gives the purchaser the right but not the obligation to sell the underlying asset at a fixed price to the seller at any time before the expiry of the contract.

The strike; price is the agreed price for purchase of the underlying asset under the options contract.

The expiration date is the date of expiry of the options contract. Options contracts are time bound contracts and purchasers have the right to exercise their option only before or on the expiration date of the contract.

Exercising the option is the enforcement of the right of purchase under an options contract at the agreed price before the expiration date. In the case of a 'put' options contract exercise is enforcing the right to sell to the seller by the purchaser at the agreed price before the expiration date.

The Ask and Bid price are the price at which traders purchase or sell options. Ask is the number of options contracts available for purchase at the ask price. Bid is the number of options contracts available for sale at the bid price.

Spread options are trades that get their value from the difference in prices between two or more assets. Typically spread options are equities or currencies traded at large exchanges or at the over the counter market.

Hedging is the use of financial instruments called derivatives. Hedging is a type of insurance against loss. When traders hedge, they insure themselves when prices fall. Hedging may result in short term losses but allow traders to sell at a profit during a sudden upsurge in prices.

Speculating is betting on the price movement of stock options. Investors who speculate in options can make large profits if the stock rises as predicted. Speculation can also result in huge losses if the stock falls contrary to expectations.

Call and Covered call are two terms often used in options trading. Call is the right but not the obligation to purchase underlying assets at a specified price within a specified period of time. A covered call is when the seller of call options owns the corresponding amount of the underlying asset and sells call options against rising prices to make a safe profit.

Before starting trading and investing options learn the definitions of the many terms association with options will give investors a better understanding of the trading system before investing money in options.