This page offers you education on Option Terminology. There are many
strategies but for the new investor the most basic are buying calls and buying
puts.
How Stock Options Work:
Stock Options are used to take a position in the market to capitalize on an
upward or downward price move of a stock for just a small percentage of the
cost. When you buy an option you have the right to either purchase or sell
stock at a predetermined price. When and if you choose to purchase or sell
stock at that predetermined price you are said to be exercising your right.
Options are purchased in contracts, for example the purchase of 1 call option
contract is like buying 100 shares of an underlying security or index.
A Contract: Is a call or put option issued by the options clearing corporation.
Contract Size: Is the number of shares of the underlying security covered by
an options contract. This size is usually 100 shares for one stock option
contract unless otherwise adjusted for a special event(such as a stock split or
stock dividend).
Call Option: A call option gives the buyer the right, but not the obligation, to
buy the underlying security at a specific price(called a strike price) for a
specified time(called the expiration date). The seller of a call option has the
obligation to sell the underlying security should the buyer exercise his option to
buy. The person who purchases an option, whether it is a put or call, is the
option buyer and the person who originally sells the put or call is the option
seller.
Put Option: Gives the buyer the right, but not the obligation, to sell an
underlying security at a specific price for a specified time. The seller of a put
option has the obligation to buy the underlying security should the buyer
choose to exercise his option to sell.
Strike Price: Is the specified share price at which the shares of stock can be
bought or sold by the buyer if he exercises the right to buy(in the case of a call)
or sell(in the case of a put). Strike prices are determined when the underlying
security reaches a certain numeric value and trades consistently at or above
that value, the next highest strike may be added.
Option Premium: The premium is the price at which the contract trades.The
premium is the price of the option and is paid by the buyer to the writer, or
seller, of the option. In return, the writer of the call option is obligated to deliver
the underlying security to an option buyer if the call is exercised or buy the
underlying security if the put is exercised. The writer keeps the premium
whether or not the option is exercised.The potential loss to the buyer of an
option can be no greater than the initial premium paid for the contract,
regardless of the performance of the underlying stock. This allows an investor
to control the amount of risk assumed.
At the money option: When the price of the underlying security is equal to
the strike price, an option is called at-the-money.
In the money option: A call option is in-the-money if the strike price is less
than the market price of the underlying security. A put option is in-the-money if
the strike price is greater than the market price of the underlying security.
Out of the money option: A call option is out-of-the-money if the strike price
is greater than the market price of the underlying security. A put option
is-out-of-the-money if the strike price is less than the market price of the
underlying security.
Expiration Date: The last day on which an option may be exercised. For
stock options, this date is the Saturday immediately following the third Friday
of the expiration month. If friday is a holiday, the last trading day will be the
preceding Thursday.
Put/Call Ratio: Is the number of puts traded each day divided by the number
of calls traded each day. Such ratios are calculated on individual
stocks,indices or the overall market. When there is an excess of call buying by
investors(low put/call ratio), the buying strength has probably depleted and
there is little money left on the sidelines to push the stock or index higher.
When there is a large number puts compared to calls(high put/call ratio), there
are many investors who think that stocks will decline, thus there is large
amounts of money on the sidelines waiting to go back into the market. At that
point, these investors have already sold a great deal of their stock positions,
which means there is a lack of selling strength.
Open Interest: The number of outstanding option contracts in the exchange
market or in a particular class or series. Along with put/call ratios you can
configure open interest on individual stocks using the front 3 months of option
data. The open interest configuration of a stock is simply the number of open
puts or calls at the various strike prices and can be calculated by putting
adjacent call and put bars of the open interest at every strike price and writing
them down like a chart. Option strike prices are usually round number levels
that sometimes serve as support or resistance. The same excess of open
interest at either calls or puts will normally react the same way as high or low
put/call ratios.
Delta: Is the percentage of a price movement in a underlying stock that
translates into price movement in a particular option contract. For example a
delta of 50 percent indicates that the option will move up or down by one half
point for each one point rise or decline in the underlying stock. Call options
have positive delta, put options have negative delta. Delta increases as the
stock price increases and decreases as the stock decreases. The higher the
Delta percentage, the more the option will move with the stock price.
Intrinsic Value: The amount by which the strike price of an option is in the
money.
Example of an option contract purchase: If in June xyz stock was trading
at $59 and you expect the stock to go up in the next weeks or months, you
might buy a call option for either the month of July, August or September(these
are the expiration months). At 50,55, or $60(which are strike prices).The
option premium contract price may be for example July $2.50, August $3.20,
and September $4.00 per contract which if buying 1July contract it would cost
$250(which is eqiuvalent to 100 shares x $2.50= $250) and 2 contracts would
be $500 and so forth.
To learn about Fundamental and Technical aspects for Options click on their
link.
For More Information and other Questions you may have,check out our FAQ
page.
Options and Futures Trading is Risky and is not suitable for all investors, You
are not guaranteed to make money. Never put at risk more money than you
are willing lose.
strategies but for the new investor the most basic are buying calls and buying
puts.
How Stock Options Work:
Stock Options are used to take a position in the market to capitalize on an
upward or downward price move of a stock for just a small percentage of the
cost. When you buy an option you have the right to either purchase or sell
stock at a predetermined price. When and if you choose to purchase or sell
stock at that predetermined price you are said to be exercising your right.
Options are purchased in contracts, for example the purchase of 1 call option
contract is like buying 100 shares of an underlying security or index.
A Contract: Is a call or put option issued by the options clearing corporation.
Contract Size: Is the number of shares of the underlying security covered by
an options contract. This size is usually 100 shares for one stock option
contract unless otherwise adjusted for a special event(such as a stock split or
stock dividend).
Call Option: A call option gives the buyer the right, but not the obligation, to
buy the underlying security at a specific price(called a strike price) for a
specified time(called the expiration date). The seller of a call option has the
obligation to sell the underlying security should the buyer exercise his option to
buy. The person who purchases an option, whether it is a put or call, is the
option buyer and the person who originally sells the put or call is the option
seller.
Put Option: Gives the buyer the right, but not the obligation, to sell an
underlying security at a specific price for a specified time. The seller of a put
option has the obligation to buy the underlying security should the buyer
choose to exercise his option to sell.
Strike Price: Is the specified share price at which the shares of stock can be
bought or sold by the buyer if he exercises the right to buy(in the case of a call)
or sell(in the case of a put). Strike prices are determined when the underlying
security reaches a certain numeric value and trades consistently at or above
that value, the next highest strike may be added.
Option Premium: The premium is the price at which the contract trades.The
premium is the price of the option and is paid by the buyer to the writer, or
seller, of the option. In return, the writer of the call option is obligated to deliver
the underlying security to an option buyer if the call is exercised or buy the
underlying security if the put is exercised. The writer keeps the premium
whether or not the option is exercised.The potential loss to the buyer of an
option can be no greater than the initial premium paid for the contract,
regardless of the performance of the underlying stock. This allows an investor
to control the amount of risk assumed.
At the money option: When the price of the underlying security is equal to
the strike price, an option is called at-the-money.
In the money option: A call option is in-the-money if the strike price is less
than the market price of the underlying security. A put option is in-the-money if
the strike price is greater than the market price of the underlying security.
Out of the money option: A call option is out-of-the-money if the strike price
is greater than the market price of the underlying security. A put option
is-out-of-the-money if the strike price is less than the market price of the
underlying security.
Expiration Date: The last day on which an option may be exercised. For
stock options, this date is the Saturday immediately following the third Friday
of the expiration month. If friday is a holiday, the last trading day will be the
preceding Thursday.
Put/Call Ratio: Is the number of puts traded each day divided by the number
of calls traded each day. Such ratios are calculated on individual
stocks,indices or the overall market. When there is an excess of call buying by
investors(low put/call ratio), the buying strength has probably depleted and
there is little money left on the sidelines to push the stock or index higher.
When there is a large number puts compared to calls(high put/call ratio), there
are many investors who think that stocks will decline, thus there is large
amounts of money on the sidelines waiting to go back into the market. At that
point, these investors have already sold a great deal of their stock positions,
which means there is a lack of selling strength.
Open Interest: The number of outstanding option contracts in the exchange
market or in a particular class or series. Along with put/call ratios you can
configure open interest on individual stocks using the front 3 months of option
data. The open interest configuration of a stock is simply the number of open
puts or calls at the various strike prices and can be calculated by putting
adjacent call and put bars of the open interest at every strike price and writing
them down like a chart. Option strike prices are usually round number levels
that sometimes serve as support or resistance. The same excess of open
interest at either calls or puts will normally react the same way as high or low
put/call ratios.
Delta: Is the percentage of a price movement in a underlying stock that
translates into price movement in a particular option contract. For example a
delta of 50 percent indicates that the option will move up or down by one half
point for each one point rise or decline in the underlying stock. Call options
have positive delta, put options have negative delta. Delta increases as the
stock price increases and decreases as the stock decreases. The higher the
Delta percentage, the more the option will move with the stock price.
Intrinsic Value: The amount by which the strike price of an option is in the
money.
Example of an option contract purchase: If in June xyz stock was trading
at $59 and you expect the stock to go up in the next weeks or months, you
might buy a call option for either the month of July, August or September(these
are the expiration months). At 50,55, or $60(which are strike prices).The
option premium contract price may be for example July $2.50, August $3.20,
and September $4.00 per contract which if buying 1July contract it would cost
$250(which is eqiuvalent to 100 shares x $2.50= $250) and 2 contracts would
be $500 and so forth.
To learn about Fundamental and Technical aspects for Options click on their
link.
For More Information and other Questions you may have,check out our FAQ
page.
Options and Futures Trading is Risky and is not suitable for all investors, You
are not guaranteed to make money. Never put at risk more money than you
are willing lose.
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Unauthorized reproduction of any solo enterprises Inc.
publications is strictly prohibited. Copyright 2006, Solo
Enterprises Inc. All rights reserved.
publications is strictly prohibited. Copyright 2006, Solo
Enterprises Inc. All rights reserved.
Solo Enterprises
Inc.
Inc.