call option
the option to buy shares of stock at a specified time in the future
strike price
The price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period
long call
Call
Long
holder/buyer
right to buy
? (bullish)
Short Call
Call
Short
writer/seller
obligation to sell
? (bearish)
Long Put
Put
Long
holder/buyer
right to sell
? (bearish)
Short put
Put
Short
writer/seller
obligation to buy
? (bullish)
breakeven point
When profit is zero. sum of the strike price and the premium
expiration date
last day you can buy at that fixed price
Options Contract
A contract that allows the holder to buy or sell 100 shares of an underlying security at a given price by a given date.
Underlying Security
The security that must be delivered when an options contract is exercised.
Expiration Date
The last day an options contract may be freely exercised before it becomes void. The last day is always the third Friday of the month.
Exercise or Strike Price
The price at which an options holder may buy or sell an underlying security.
Premium
The price paid to an option writer for the right to exercise the option before it expires.
Breakeven Point
The market price of an underlying stock at which the investor neither makes nor loses money
American-style option
An option that can be exercised at any time prior to closing is called an
European-style option
An option that can only be exercised on the closing date is
opening a position
someone buys or sells a call or put, the buyer is generally said to be opening a position.
The buyer of a call or put is opening a long position. The seller of a call or put is opening a short position.
Closing a position
holder/ writer takes the opposite position than whoever opens a position
trading the option
Opening and closing a position is considered
Intrinsic value
is the amount per share that the holder of an option stands to gain by exercising it. Stated another way, it is the extent to which the option is in the money.
For in the money call options: intrinsic value = market price - strike price
�For out of the mo
Time value
the residual difference between the intrinsic value and the premium. If an option is out of the money, since it has no intrinsic value, time value is equal to the premium.
covered call
When an investor owns the underlying security and decides to sell a call option on it,v
naked call
It is a naked call because the investor has sold something she doesn't own and is vulnerable to the market. If the price of the security goes through the roof and the call is exercised, she will have to come up with considerable cash to buy the shares in