| |
| |
|
Investing Information |
|
|
|
Basic Options Terms
Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. In this article we will take up some basic options terms. Option - A contract that grants the holder the right, but not the obligation, to buy or sell a particular security at a predetermined price for a set period of time. The seller of the option has an obligation to fulfill the terms of the contract in the event of exercise by the option buyer. Call Option - A contract that gives the buyer the right, but not the obligation, to purchase a specified amount of underlying security at a strike price anytime before the contract expires (if it is American style option) or at expiration only (if it is European style option). The call option buyer hopes the price of the shares will rise by a specific date while the put option seller hopes that the price of the shares drop or remain stable by the specified date. For example: I write a call option with 100 Microsoft shares, strike at $35 and expiration date in July. Now I have an obligation to fulfill the terms of the contract. I get some money for this contract and I hope that price will be no more then $35. But if you as option buyer exercise contract I must sell you 100 Microsoft shares at $35 for each. Put Option - An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a strike price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date while the put option seller hopes that the price of the shares rise or remain stable by the specified date. For example: I write a putt option with 100 Microsoft shares, strike at $35 and expiration date in July. I get some money for this contract and I hope that price will be no less then $35. But if you as option buyer exercise contract I must buy from you 100 Microsoft shares at $35 for each. Underlying Security - The stock, commodity, futures, or other financial instrument on which an option contract is based. example: In previous examples underlying security is Microsoft stock. Strike Price or Exercise Price - The price, specified by the option contract, at which the holder can buy or sell the underlying security. Expiration Date - The date on which an option and all rights associated with it ceases to exist. Expiration Date is the last day on which an option may be exercised. Expiration - The date and time after which an option may no longer be exercised. Exercise - Holder may to invoke the right associated with a particular option contract. When exercising a call option, the holder buys stock at a strike price from the option seller. In the case of a put, the holder of the option sells the stock to the option seller at the strike price. Automatic Exercise - The automatic exercise of an in-the-money option at expiration by the clearing firm. Premium - the total price of an option including both intrinsic and extrinsic or time value. 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 At-the-money - An option is at-the-money if the strike price is the same as the current market price of the underlying security. Out-of-the-Money - An option with strike price is above (in the case of a call) or below (in the case of a put) the current market price of the underlying security. Intrinsic Value - The portion of an option's price that can be account for by the amount the option is in-the-money. Intrinsic Value=Oprion price - Time Value (for options is in-the-money) Time Value or extrinsic value - The amount by which the current price of an option exceeds its intrinsic value. The price of out-of-the-money and at-the-money options is made up exclusively of extrinsic value Options may be risky, but your can control and reduce risks. If you are newbie in options, buy some books, visit some seminars or online trainings before buy or sell your first option. If you would like to find investment or trading courses, training or seminars, visit FPLab - Educational Resource For Traders and Investors Links catalogue.
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Get Wealthy With the Rule of 72 When it comes time to retire how many people would like to have a nest egg that is 2 or 3 or even 4 times larger than what they have? With an answer so obvious allow me to explain how you can make it happen for yourself.First we'll explain the Rule of 72. Why You Need To Buy and Sell Gold Coins (Part 2) How to Collect Rare Coins For Fun and ProfitTime has proven that collectors tend to make the most money in rare coins because they search out "undervalued coins" and buy during market lulls. Buying in today's market climate offers you superb upside profit potential. Property Investment Just Got Exciting There is an area in Brazil that has lower crime & lower property prices than where your are probably sitting right now!Demand from the increasing retirement population and from those who have benefited from their own property markets are now pushing overseas property prices up. Brazilian property prices are still very low and offer the overseas property buyer quality real estate in stunning locations. Why You Need To Buy and Sell Gold Coins (Part 3) Putting Rare Coin Market Cycles to Work for You.. Investigate Before You Invest "Through wisdom is a house built. And by understanding it is established. The Biggest Oil Opportunity in the World - And How You Can Profit From It Where is the second biggest deposit of oil reserves in the world?In the oil sands region of Alberta, Canada. Oil sands are a thick, viscid mixture of bitumen, sand, clay, and water. Realistic Investing Expectations Over the long term stocks have provided us with great average return results. But this average return masks a great deal of volatility, because returns have fluctuated within a very wide band. Preparing to Invest: How to get started Investments can be a source of great potential earnings. The two most common reasons that a person does not invest are either they do not have the money or they do not know how to get started. Finding the Perfect Company The perfect company - it's the holy grail of the investment world. The company that will make its initial investment hundreds of times over. Sitcom Investing A fickle stock market encourages good-humored mockery.Recently, as I watched the premiere of a sitcom, an obvious omission breached television etiquette. DXPortfolio: A Great Passive Investment of 25% to $40% per month First, I need to explain about e-currencies or digital currencies. DXPortfolio are based and supported by the supply and demand of e-currency. Why You Need To Buy and Sell Gold Coins (Part 1) The Value of Gold in a Era of Paper Assets, Stocks, Bonds and Mutual Funds.. Waiting 20 Years Can Cost You Millions - Dont Wait Start Today Many Young people live for Today. They really don't fully understand the power of compound interest. Secret Stock Options Trading Strategies the Experts Don`t Want You to Know To understand stock options, we need to look at Webster’s Dictionary’s definition of the word strategy.Webster’s Dictionary defines the term strategy as1. Annuity Investment Guide While there is not a lack of information on annuities, there certainly is a lack of good information. In an age full of information, we are constantly bombarded with irrelevant data. Rolling your 401k: Contributory IRA vs. Rollover IRA In an ideal world you would start your working career with a great company in your early 20s, steadily climb the corporate ladder, retire at age 65, and draw a sufficient income from your accumulated 401k account to live happily ever after.Unfortunately, that's not how the real world works. Using Divergences to Keep Out of Bad Trades The American Football season just came to an end with my team getting close to the championship but falling short again. I am a big fan of the Indianapolis Colts and we keep having a groundhog day season year after year but it is still fun to watch. Creating a Financial Future--Putting Your Plan Into Action Part 2 Real Estate can be a useful tool for investing. The simplest real estate investment is not truly an investment, but a cost-reduction - that is owning your own home. What is an Investor Ready Business Plan A Business Plan, as all good entrepreneurs starting out in life should know is the foundation, or rather a springboard, towards the establishment and growth of a new business. A business plan is an essential tool for companies raising capital - and your business plan needs to be Investor Ready. Investing and Asset Allocation Sometimes you spend sleepless nights worrying about which stocks to buy and which to sell, which funds to own and which to dump and whether to get into bonds.All of these are legitimate concerns, but the greatest determinant of your success as an investor will not be your sagacity in selecting specific stocks, bonds or funds for your portfolio.
|
| home | site map |
| © 2006 |