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Options Trading Glossary

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  • Options Trading Glossary

    Options trading is a complicated area of the financial market. Here we give you a basic options trading glossary so you have a foundation to increase your knowledge further.

    Trading options is the buying the right to purchase an underlying asset within a specified time period. It is a risky form of investment. If you don't fully understand what you are doing you can lose a lot of money.

    The reason people trade options though is that you have the ability to make a lot of money very quickly. The biggest tip I can give you is never go into this form of investment if you don't fully understand what you are doing.

    To help you on your way and to give you a better understanding here is our basic options trading glossary.

    Your Options Trading Glossary

    Strike Price - This is the underlying price that the stock can be purchased or sold at.

    Exercised - Before a position can be exercised the price must go above (for calls) or below (for puts) the strike price before the position can be exercised.

    Expiration Date - This is the time limit set by both the buyer and seller in which action must be taken dependent on the strike price being reached so the option can be exercised.

    Options Exchanges - There are national options exchanges where trade can be done. When a deal is made through this avenue it is known as a listed exchange. One such exchange is the Chicago Board Options Exchange (CBOE).

    Contract - When a deal is done on an options exchange there are fixed strike prices and expiration dates. Each listed options represent 100 shares of a stock otherwise known as a contract.

    In-The-Money - You are considered "in-the-money" with a call option when the price goes above the strike price. Likewise with a put option if the price goes below the strike price you are "in-the-money" too.

    Intrinsic Value - The amount of money you make on the option is called its intrinsic value.

    Premium - This is the total cost (the price) of an option.

    Time Value - This is the time remaining on the option before the expiration date.

    Volatility - This is a term that states how high risk a certain option is.

    Options Trading

    Options trading as we stated at the top of this article is a complex form of investment. The basic options trading glossary we have given you here will allow you to go on and do further research and understand what you are reading. There are plenty of websites that give out free information just to a relevant search in the major search engines like Google.

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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

    Good KARMA and positive energy abound.

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