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Dear Steve,
I am a real beginner trying to understand the basics of options. Let's say I have $100, would you please tell me the practical steps in doing the call or put?
-- R.S.

While option trading is an equal opportunity venture, (everyone is welcome to make or lose all his or her money) it does draw some economic lines in the sand. I'm sorry to say I don't know of a good way to use $100, aside from buying some books or maybe keeping your subscription to



Check that. I stand corrected. Dr. John Nafeh, the chairman and CEO of was in our office on Thursday. In the course of our conversation, he revealed that the online exchange has reduced its account minimum to $100 from $500, effective immediately.

I profiled HedgeStreet in

an article last year, and while it's still very much a start-up operation, I believe it is beginning to find the right mix of products and clients needed to become a viable exchange. It's worth repeating that HedgeStreet is a registered clearing corporation and the company is regulated by the CFTC, making it no less regulated or legitimate than any financial exchange.

The main difference is in the product offering and the type of payouts. The products tend to be based on recurring data points, such as nonfarm payrolls, the price of gas or the medium home price in a given region. That is, almost any wager in which there is a win/lose proposition -- in which a set of criteria are either met or not met within a specified period of time -- can be considered binary options and therefore a derivatives contract.

What makes HedgeStreet different from simply placing a wager at the track or with the local bookie is that HedgeStreet allows for trading of the contract right up to the expiration or completion of the event. The local OTB doesn't let you renegotiate or take odds after the horses have left the gate.

And if you really want to get some hands-on experience as to how the market functions, HedgeStreet is accepting applications for

market makers for both existing products or anything that you can dream up that you believe has some economic significance.

This, of course, will require more than $100, but the lessons of how difficult it is to maintain a fair and orderly market might prove priceless. It's kind of like a district attorney sharpening his skills before becoming a high-priced defense lawyer.

Spend Summer Under the Knowledge Tree

If you don't toss your $100 at HedgeStreet, it's a good time to do some educational reading. For the 15th quarter in a row, I still recommend

Options as a Strategic Investment

by Larry McMillan,

The Option Advisor

by Bernie Schaeffer and

Options and Options Trading

by Robert Ward as great places to start. They all come in under $40, cheaper if you go through their Web sites, and that will leave you plenty of money for coffee, Vivaran or whatever gets you from page to page.

Also, don't forget the free resources that are available on the Internet. The most notable coming from the good and helpful people at the

Options Industry Council, which not only offers answers to your questions by phone, but also many great educational programs and learning resources. Use them. Tell them I sent you.

As originally published, this story contained an error. Please see

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Steven Smith writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback;

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