Basic Option Terminology

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Option: Contracts give the buyer the right to buy or sell an asset for a fixed price (the strike price) for a specific length of time. This is available for stocks, ETFs, Indices, and Futures

Call Contract: Gives the buyer the right but not the obligation to buy 100 shares of the underlying at a specific price (strike) by a specific date (expiration date) The buyer pays a premium for the right.

Seller of Call Contract (writer): Receives Premium and return is obligated to sell 100 shares at the specified price if requested by the call buyer before the expiration date.

Put Contract: Gives the buyer the right but not the obligation to sell 100 shares of the underlying at a specific price (strike) by a specific date (expiration date). The buyer pays a premium for the right.

Seller of the Put Contract (writer): receives the premium and return is obligated to buy 100 shares at the specified price if requested by the call buyer before the expiration date.

Option Premium: What the buyer pays to buy the Option

Premium x 100 =Total Cost of Contract

Example:

AAPL March 5 125 Put Premium $1.70 Cost to buy is $1.70 x 100 = $170.00 + Commissions

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Monthly Options: Stop trading at 4 pm EST on the third Friday of the month

Weekly Options: Stop trading at 4 pm EST on the Friday of Expiration

Option Interest: Total number of open contracts. (Calculated end of day)

Option Chain: Table of values for the calls and puts.

Minimum Information of Options Chain:

Strike

Volume

Open Interest

Bid Ask

Expiration

Spread: The difference between the Bid and the Ask

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