What does an options trader do? Are they like investment bankers??

I am not sure what you mean by an "options trader" in your question. If you mean anyone who buys or sells options at any time, there are many different things done with options.

For example, assume the Chicago School District asks for bids on a contract to supply Florida citrus fruit for the 2008-2009 school year. If I give a them a bid specifying a specific price I could be suffer huge financial losses if there was a severe freeze, destroying a large percentage of the citrus trees and driving up prices, while the bids were being evaluated. Consequently I likely would buy options on citrus fruit futures to protect myself. If I did not get the conract I could them sell the options, probably for a small loss, but if I did get the contract I would have prevented a price spike from hurting me. I would have traded some options, but I would not have considered myself an "options trader" per se.

If you only mean professional options traders, such as market makers, they normally buy and sell options trying to profit from changes in implied volatility while protecting themslves from changes in the price of the underlying by hedging their positions with other options and positions in the underlying.

The buy and sell options contracts. Everyone has access to options contracts, and the people who use them the most are importer/exporters.
An options contract is a contract drafted between the writer of the contract and the buyer that obligates the writer to act on the contract at the buyers discretion. Sound odd and complicated...its suppose to. The system was designed to keep you out...so let me give you an example using stocks.

This is what a call option contract would look like for starbucks: 1 SBUX Feb 25 @ $2. The 1 means one contract, which is composed of 100 shares of Starbucks (SBUX) stock. The month, February, is the month the contract expires. The number 25 is the price of the stock in the contract, which means if you bought this contract, the writer of the contract would owe you 100 shares of SBUX @ $25. Right now, SBUX is trading at 20, so naturally you aren't going to exercise that contract. Now this contract is going to cost you. The $2 at the end implies the premium you must pay to get the contract. $2/share...so $200 to buy this contract. Now, lets say that Starbucks shoots up to $30 by the middle of January (yeah, right). Well, you paid $200 for this already..and, you want to exerices this contract. So you you still owe the $2500 to buy the 100 contracted shares at $25 (meaning you paid out $2700), but then you can turn around and sell them for $30/share and clear a profit of $300. Lets say the stock dropped to $15/share. Well, you DO NOT have to exercise the contract. YOu can just let it expire. The worst is you are out $200 for the contract, but this would be way better than spending $2000 to get those shares @20, only to see it drop to 15.

Options traders RARELY use their contracts. They just buy the contracts at the posted premium and then try and sell them to other buyers. Its just like trading stocks at that point.

You are not just restricted to be a buyer either. Lets say you think that XYZ is going down! You've done your homework and believe the stock is on a road to hell for the next 6 months..well, you can write a call option contract in the hopes that someone will buy it. If you get a buyer, they pay you the premium. And while they are hoping the stock goes up, you are hoping it goes down. If it goes down, you pocket the money. If it goes up, and the exercise the contract, you had best hope you have the money to pay them.

Its tricky, but there is some good money in it. A friend of mine is pulling in some real doe doing this. It ain't my bag, but I give her props. Anyone who can take one grand and turn it into eighteen grand in 7 months must be doing something right.


hope this helped.

No they are not like investment bankers. An options trader is looking for momentum stocks going up or down and trying to make money in doing so. Options contracts expire on the third Friday of every month but not all stocks trade options.

It takes some getting used to from the mind set stand point. You are not looking for a stock for a long term investment but only one that you can buy options on and make money in the short term.

Good Luck.

Buyers/ holders of option contracts are acting for themselves.
The option contract that they buy gives them the OPTION to either buy (call) or sell (put) a given stock / commodity by a given date (strike date) at a given price (strike price).
The seller/ writer of that contract is OBLIGATED to deliver the stock or commodity at the strike price

Investment Bankers do NOTHING like that.

Hope this is simpler and more helpful for you.

Investment bankers handle large accounts for their clients and may involve stocks, bonds, options, and forex.
Options trader primarily trade just for themselves for income or growth potential using just options.