Stock Market Trading:
Options Trading
- Options give you the right to buy or sell
a security.
- If you a buyer you have the right to buy
or sell the underlying security at a specified price.
- An option seller you have the obligation
before a buyer.
- There are two type of options:
- calls - give you the right to buy the
underlying security.
- puts - give you the right to sell
the underlying security.
- Each option corresponds to 100 shares
of underlying security.
- The price of options depend on several
factors:
- current price of the underlying security
- strike price of the option
- time remaining until expiration
- volatility.
- Strike Price. The price at which
an underlying security can be purchased or sold if the option is exercised.
- Expiration Date. The date the option
expires (3rd Friday of the expiration month). Each option has an expiration
day and after that date you lose your right to buy or sell the underlying
security at the specified price.
- Premium. The price of the options.
If option costs $3 then total premium is $300 (100 shares).
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