If you are interested in option trading there are some critical terms you must understand. These terms or jargons as you may call them are frequently used by various traders and since you would be dealing in the same market as them you have to have a full understanding of these option trading setup terms or you are a guaranteed failure. If you do not want to look lost when other traders are discussing with you and you do not want to be clueless about what option trade setup terms are when the chips are down, you must invest sometime in understanding them before you proceed at all. One step at a time.

The first thing to do, even before you put your money into any trade is to consider the following option trade setup terms and see if you understand them. These terms include derivatives, debit spread, credit spread, options strategies, stock options, butterfly and vertical spreads, iron condor spreads. Looking lost? Do not worry as we would go on to explain what these option trading terms imply. Once you understand these options trading setup terms a whole new world of opportunities would open up to you.

Credit spreads: This implies that you have bought a lower return option but a higher return option has been sold for you. Thus making you much more money.

Derivatives: This reflects the security on which the price is dependent on the available assets. Thus its value is indirectly dependent on the variables that affect the assets.

Stock options: This is the contract that determines whether the holder is in a buying position or a selling position of a stock at an agreed price before the contract expires.

Debit spreads: unlike the credit spread, here the investors pay cash to carry out a transaction . her must have necessary funds to cover the transaction.

Vertical spreads: This is a strategy in which the investors takes two identical position for a trade at different price point but yet have the same expiration date.

Options strategies: This refers to various techniques that traders employ to maximize the returns on their investment.

Iron condor spread: This is a complex trading option process. It carries quite a high risk

Butterfly spread: This strategy of trading options is particularly effective for stagnant stocks. You have to be reliably known by your broker to be able to participate in such trades.

This is just an introduction into various option trade setup terms; invest time in studying these terms and a profitable world of opportunity exist out there for you.