The Lingo
- Details
- Category: Beginners Guide
People who purchase choices are known as holders and people who sell choices are known as writers; furthermore, buyers are mentioned to have long positions, and sellers are said to have short positions.
Here is the necessary distinction between buyers and sellers:
-Name holders and put holders (patrons) aren't obligated to buy or sell. They've the choice to exercise their rights if they choose.
-Call writers and put writers (sellers), however, are obligated to buy or sell. Because of this a seller may be required to make good on a promise to buy or sell.
Don't fret if this appears complicated - it is. Because of this we are going to look at options from the standpoint of the buyer. Selling choices is more complicated and may be even riskier. At this point, it is sufficient to understand that there are twosides of an options contract.
To trade options, you may have to know the terminology associated with the options market.
The value at which an underlying stock could be purchased or bought is called the strike price. That is the worth a inventory worth should go above (for calls) or go below (for places) before a position may be exercised for a profit. All of this should occur earlier than the expiration date.
An option that's traded on a nationwide options exchange such as the Chicago Board Options Exchange (CBOE) is known as a listed option. These have fastened strike costs and expiration dates. Every listed choice represents 100 shares of firm stock (referredto as a contract.
For name choices, the choice is claimed to be in-the-money if the share value is above the strike price. A put choice is in-the-cash when the share worth is beneath the strike price. The amount by which an possibility is in-the-cash is known as intrinsic value.