options basics today, we will focus on the most common reasons. 1. Leverage: As stated on the last slide, one option contract controls shares of the underlying’s stock 2. Capital outlay: You can purchase an option for significantly less than purchasing the underlying stock blogger.com Size: 1MB Options Trading Example. Let’s say that on June 1st, the stock price of ABC is $ and the premium is $5 for an August 70 call. This shows that the expiration is the 3rd Friday of August, and the strike price is $ The total price for the options contract is, therefore, $5 (premium price) x = $ We multiply by because, in most This guide has equipped you with the knowledge of relevant options trading terminologies and easy-to-implement option strategies for every market phase. In the end, you should only trade options depending on the market circumstances and expectations. FREE PDF GUIDE: Get Your Options Trading Strategies PDF Guide Here
Options Trading Strategies Beginners Guide - With Free PDF
Embed Size px x x x x Option Contract Specifications The following terms are specified in an option contract. Option Class The two classes of stock options are puts and calls. Call options confers the buyer the right to buy the underlying stock while put options give him the rights to sell them. Strike Price The strike price is the price at which the underlying asset is to be bought or options basics pdf when the option is exercised. It's relation to the market value of the underlying asset affects the moneyness of the option and is a major determinant of the option's premium.
Premium In exchange for the rights conferred by the option, the option buyer have to pay the option seller a premium for carrying options basics pdf the risk that comes with the obligation.
The option premium depends on the strike price, volatility of the underlying, options basics pdf, as well as the time remaining to expiration. Expiration Date Option contracts are wasting assets and all options expire after a period of time. Once the stock option expires, the right to exercise no longer exists and the stock option becomes worthless.
The expiration month is specified for each option contract. The specific date on which expiration occurs depends on the type of option. For instance, stock options listed in the United States expire on the third Friday of the expiration month.
Option Style An option contract can be either american style or european style. The manner in which options can be exercised also depends on the style of the option. American style options can be exercised anytime before expiration while european style options can only be options basics pdf on expiration date itself. All of the stock options currently traded in the marketplaces are american-style options. Underlying Asset The underlying asset is the security which the option seller has the obligation to deliver to or purchase from the option holder in the event the option is exercised, options basics pdf.
the case of stock options, the underlying asset refers to the shares of a specific company, options basics pdf. Options are also available for other types of securities such as currencies, options basics pdf, indices and commodities.
Contract Multiplier The contract multiplier states the quantity of the underlying asset that needs to be delivered in the event the option is exercised. For stock options, options basics pdf, each contract covers shares.
The Options Market Participants in the options market buy and sell call and put options. Those who buy options are called holders. Sellers of options are called writers.
Option holders are said to have long positions, and writers are said options basics pdf have short positions. Call OptionDefinition: A call option is an option contract options basics pdf which the holder buyer has the right but not the obligation to buy a specified quantity of a security at a specified price strike price within a fixed period of time until its expiration. For the writer seller of a call option, it represents an obligation to sell the underlying security at the strike price if the option is exercised.
The call option writer is paid a premium for taking on the risk associated with the obligation. Buying Call Options Call buying is the simplest way of trading call options, options basics pdf. Novice traders often start off trading options by buying calls, options basics pdf, not only because of its simplicity but also due to the large ROI generated from successful trades.
You strongly believe that XYZ stock will rise sharply in the coming weeks after their earnings report. reported strong earnings and raised its earnings guidance for the next quarter. Let us take a look at how we obtain this figure. This strategy of trading call options is known as the long call strategy. See our long call strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points.
Selling Call OptionsInstead of purchasing call options, one can also sell write them for a profit. Call option writers, also known as sellers, sell call options with the hope that they expire worthless so that they can pocket the premiums.
Selling calls, or short call, involves more risk but can also be very profitable when done properly. One can sell covered calls or naked uncovered calls. Covered Calls The short call is covered if the call option writer owns the obligated quantity of the underlying security.
The covered call is a popular option strategy that enables the stockowner to generate additional income from their stock holdings thru periodic selling of call options.
See our covered call strategy article for more details. Naked Uncovered Calls When the option trader write calls without owning the obligated holding of the underlying security, he is shorting the calls naked. Naked short selling of calls is a highly risky option strategy and is not recommended for the novice trader, options basics pdf. See our naked call article to learn more about this strategy.
Call spreads limit the option trader's maximum loss at the expense of capping his potential profit at the same time. Definition: A put option is an option contract in which the holder buyer has the right but not the obligation to sell a specified quantity of a security at a specified price strike price within a fixed period of time until its expiration. For the writer seller of a put option, it represents an obligation to buy the underlying security at the strike price if the option is exercised.
The put option writer is paid a premium for taking on the risk associated with the obligation. Buying Put Options Put buying is the simplest way to trade put options. When the options trader is bearish on particular security, he can purchase put options to profit from a slide in asset price. The price of the asset must move significantly below the strike price of the put options before the option expiration date for this strategy options basics pdf be profitable. You strongly believe that XYZ stock will drop sharply in the coming weeks after their earnings report.
Let's take a look at how we obtain this figure. Although you don't own any share of XYZ. This strategy of trading put option is known as the long put strategy. See our long put strategy article for a more detailed options basics pdf as well as formulae for calculating maximum profit, maximum loss and breakeven points.
Protective Puts Investors also buy put options when they wish to protect an existing long stock position. Put options employed in this manner are also known as protective puts. Entire portfolio of stocks can also be protected using index puts. Selling Put Options Instead of purchasing put options, one can also sell write them for a profit. Put option writers, also known as sellers, sell put options with the hope that they expire worthless so that they can pocket the premiums, options basics pdf.
Selling puts, or put writing, involves more risk but can be profitable if done properly. Covered Puts The written put option is covered if the put option writer is also short the obligated quantity of the underlying security. The covered put writing strategy is employed when the investor is bearish on the underlying. Naked Puts The short put is naked if the put option writer did not short the obligated quantity of the underlying security when the put option is sold.
The naked put writing stra. Home Documents Stock Option Basics. Post on Jul views. Category: Documents 0 download. Tags: option style option premium option writer option holders stock option basicsdefinition option class type of option option contract specifications. In the case of stock options, options basics pdf, the underlying asset refers to the shares of a specific company. Put Option Definition: A put option is an option contract in options basics pdf the holder buyer has the right but not the obligation to sell a specified quantity of a security at a specified price strike price within a fixed period of time until its expiration.
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Option Trading Basics - Simplest Explanation
, time: 3:19Options Trading Strategies Quick Guide With Free PDF
This guide has equipped you with the knowledge of relevant options trading terminologies and easy-to-implement option strategies for every market phase. In the end, you should only trade options depending on the market circumstances and expectations. FREE PDF GUIDE: Get Your Options Trading Strategies PDF Guide Here 1 Option Basics: A Crash Course in Option Mechanics 5 As shown in the Figure , the intrinsic value increases tick for tick as the market moves beyond the strike price of the option. In this case, it is a corn call option with a strike price of $ With the File Size: KB In this PDF file you will learn Basics of Options. After reading your will be better informed than many option traders. CHAPTER 1: Option Trading Basic Terms In this chapter you will learn Option Trading Basic Terms like Call Option, Put Option, At The Money, In The Money. Out of The Money Options, CE, CA, PE and PA. Call Option:File Size: 1MB
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