Wealthpress helps you: Learn About Option Trading Important Terms

There are hundreds of terms that are used in the financial language,Rob Booker newbies have to comprehend initially the most important and frequently used words.

Option – is the right of the buyer to either purchase or sell the hidden possession at a fixed price and a fixed date. At the end of the agreement,the owner can work out to either sell the choice or purchase at the strike cost. The owner has the right to pursue the agreement however he or she is not bound to do so.

Call Option – offers the owner the right to purchase the hidden possession.

Put Option – offers the owner the right to sell the hidden possession.

Exercise – is the action where the owner can choose to purchase (if call choice) or sell (if put choice) the hidden possession or,to ignore the agreement. If the owner chooses to pursue the agreement,he should send out a workout notification to the seller.

Expiration – is the date where the agreement ends. After the owner and the expiration does not exercise his or her rights,the agreement is ended.

In-the-money – is an option with an intrinsic worth. The call choice is in-the-money if the hidden possession is higher than the strike cost. The put choice is in-the-money if the hidden possession is lower than the strike cost.

Out-of-the-money – is an option without any intrinsic worth. The call choice is out-of-the-money if the trading cost is lower than the strike cost. If the trading cost is higher than the strike cost,the put choice is out-of-the-money.

Offsetting – is an act by which the owner of the choice exercises his right to purchase or sell the hidden possession prior to the end of the agreement. This is done if the owner feels that the profitability of the stock has reached its peak within the date of the agreement.

(Option seller) Writer – is the seller of the hidden possession or the choice.

Option Seller – is the individual who obtains the rights to convey the choice.

Strike Price – is the cost at which the underlying stock should be sold or bought if the agreement is exercised. The strike cost is plainly mentioned in the agreement. For the buyer of the choice to make a profit,the strike cost must be lower than the existing trading cost of the stock. If the agreement specifies that the strike cost of a particular stock is $20 and the existing trading cost at the end of the agreement is $25,the buyer can exercise his or her rights to pursue the agreement,therefore earning $5 per stock.|For the buyer of the choice to make an earnings,the strike cost must be lower than the existing trading cost of the stock. If the agreement specifies that the strike cost of a particular stock is $20 and the existing trading cost at the end of the agreement is $25,the buyer can exercise his or her rights to pursue the agreement,therefore earning $5 per stock.}

The quantity of the choice premium is figured out by a number of factors such as the type of the choice (call or put),the strike cost of the existing choice,the volatility of the stock,the time staying until expiration and the cost of the hidden possession to date. If you are buying 1 choice agreement (equivalent to 100 share lots) at $2.5 per share,you must pay a total quantity of $250 as the choice premium (1 choice agreement x 100 shares x $2.5 per share = $250).