Thinking about getting into investing with stock options? Before you do, it's absolutely crucial to know exactly what they are, what they are not and all the basics of trading with them.

Stock options in their simplest form, are basically a contract between two parties, the buyer and the seller, to have the right to buy or sell a stock at a certain price. Stock options do have an expiration date, so any buying or selling must take place before said expiration date. It's important to note that the contract is not an obligation to buy or sell the stock, but exactly what the term implies, an "option" to do so. The seller of the option will be paid a certain amount for the option to buy or sell a stock by a certain date in the future.

Two basic kinds of options are calls and puts. The call option allows the buyer the right to buy a certain stock, while a put option allows the buyer the right to sell.

If the buyer of the stock option decides to make use of their right to buy or sell the stock or asset, the seller is obligated to allow the purchase at the price agreed upon when the option was purchased. However, the buyer of the option can also let the option to buy or sell the stock expire on the expiration date.

Options are available based on many different types of assets, such as shares of stock, securities, futures and even tangible property.

The value of the option can be calculated in numerous ways, typically by analysts that specialize in the area. These analysts attempt to predict how the value of options will change in different market conditions.

There are numerous types of options trading available, including exchange trading and over the counter, or OTC, options trading that are between private parties. Another type of stock option is the employee stock option. This type of option is offered or given to employees as part of their incentive or bonus compensation. Real estate options are also a type of stock option. There are also commodities, securities, interest rate and bond options.

One of the main advantages of stock options trading is that you don't need to own the stock in order to profit from it. Another advantage is that options are often available at a fraction of the actual market price of the stock. Also, with options, it is possible to profit should the stock go up OR down.

Like regular stock trading, stock options trading holds risks, as determined by many different factors that may be hard to understand to a layperson unfamiliar with basic investing. Due to this, it's important to research stock options trading and investing carefully before jumping in to the area.