Any one knows how options work in the stock exchange?

I have been told you can use these for low investment with a high return

Please note, there is no such thing as high return without risk.

An option is a trade - basically a bet - where the buyer pays a fee to the seller, and in return, the seller guarantees a maximum (or minimum) price for a certain commodity.

Say you buy a call option (option to buy) 100 shares of Company X at 100p in one month from now. Today's share price for X is 90p. You might pay 拢5 for this option.

If, in one month's time, the price of shares in Company X is anything below 100p - be it 1p or 99p - the option is worthless ("out of the money"), because you can buy them more cheaply on the open market than by using ("exercising") your option. The seller has made a profit of 拢5.

If, in one month's time, the price of shares in Company X is 120p, then the seller makes up the difference between the agreed ("strike") price and the actual market price. He must pay you 20p for each of 100 shares, or 拢20. You have made a profit of 拢15 on the trade (拢20 settlement less the 拢5 fee).

Trading options is therefore risky - as I say, it's a bet. If you don't know what you're doing, then selling options is particularly risky because your potential losses are unlimited - at least if you're buying options then you can only lose the upfront fee. Because of this, most options are sold by people who really know what they're doing - and because they know more than you, on average you will probably make a loss buying them.

The critical point (for me) is that options are a "zero sum game" - what one trader makes is only what another trader loses - there is no overall profit in it. By comparison, buying shares is better because on average companies grow, sales and therefore values increase, and in the long run most people get a positive return on their money.

The answer may be here.

High return = high risk. There are people out there who know what options are, and they will be playing against you.

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options are contracts to buy and sell shares!!

An option is a financial contract in which the holder has the right (but not the obligation) to buy (in the case of a call option) or sell (in the case of a put option) a specified quantity of a security at a specific price (strike price) within a fixed period of time (until its expiration).

For stock options, each contract covers 100 shares. The price you pay for the call option is small compared to the price you will need to pay if you want to own the stock. This is because options have a shelf life. The shorter the lifespan of the option, the cheaper the option.

When people say that options have high return with low investment, what they meant is that options provide you with what is known as Leverage. Compared to buying the shares outright, the option buyer is able to gain leverage since the lower priced call options appreciate in value faster percentagewise for every point rise in the price of the underlying stock.

The simplest way to trade options is to either buy call or put options. However, many more superior strategies involve buying and selling multiple options to design a trade that take into account various expectations of the underlying stock such as volatility and strength or weakness.

To learn more about options trading, you can visit this site: http://www.theoptionsguide.com