| |
| |
|
Investing Information |
|
|
|
Basic Options Terms
Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. In this article we will take up some basic options terms. Option - A contract that grants the holder the right, but not the obligation, to buy or sell a particular security at a predetermined price for a set period of time. The seller of the option has an obligation to fulfill the terms of the contract in the event of exercise by the option buyer. Call Option - A contract that gives the buyer the right, but not the obligation, to purchase a specified amount of underlying security at a strike price anytime before the contract expires (if it is American style option) or at expiration only (if it is European style option). The call option buyer hopes the price of the shares will rise by a specific date while the put option seller hopes that the price of the shares drop or remain stable by the specified date. For example: I write a call option with 100 Microsoft shares, strike at $35 and expiration date in July. Now I have an obligation to fulfill the terms of the contract. I get some money for this contract and I hope that price will be no more then $35. But if you as option buyer exercise contract I must sell you 100 Microsoft shares at $35 for each. Put Option - An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a strike price within a specified time. The put option buyer hopes the price of the shares will drop by a specific date while the put option seller hopes that the price of the shares rise or remain stable by the specified date. For example: I write a putt option with 100 Microsoft shares, strike at $35 and expiration date in July. I get some money for this contract and I hope that price will be no less then $35. But if you as option buyer exercise contract I must buy from you 100 Microsoft shares at $35 for each. Underlying Security - The stock, commodity, futures, or other financial instrument on which an option contract is based. example: In previous examples underlying security is Microsoft stock. Strike Price or Exercise Price - The price, specified by the option contract, at which the holder can buy or sell the underlying security. Expiration Date - The date on which an option and all rights associated with it ceases to exist. Expiration Date is the last day on which an option may be exercised. Expiration - The date and time after which an option may no longer be exercised. Exercise - Holder may to invoke the right associated with a particular option contract. When exercising a call option, the holder buys stock at a strike price from the option seller. In the case of a put, the holder of the option sells the stock to the option seller at the strike price. Automatic Exercise - The automatic exercise of an in-the-money option at expiration by the clearing firm. Premium - the total price of an option including both intrinsic and extrinsic or time value. In-the-Money Option - A call option is in-the-money if the strike price is less than the market price of the underlying security. A put option is in-the-money if the strike price is greater than the market price of the underlying security At-the-money - An option is at-the-money if the strike price is the same as the current market price of the underlying security. Out-of-the-Money - An option with strike price is above (in the case of a call) or below (in the case of a put) the current market price of the underlying security. Intrinsic Value - The portion of an option's price that can be account for by the amount the option is in-the-money. Intrinsic Value=Oprion price - Time Value (for options is in-the-money) Time Value or extrinsic value - The amount by which the current price of an option exceeds its intrinsic value. The price of out-of-the-money and at-the-money options is made up exclusively of extrinsic value Options may be risky, but your can control and reduce risks. If you are newbie in options, buy some books, visit some seminars or online trainings before buy or sell your first option. If you would like to find investment or trading courses, training or seminars, visit FPLab - Educational Resource For Traders and Investors Links catalogue.
MORE RESOURCES:
Investing - Google News |
|
|
|
RELATED ARTICLES
Dumb Money Many people have, at one time or another, taken some of their hard-earned funds, and decided to put them in the stock market. These well-meaning individuals either acted on a tip they saw on CNBC, or actually believed one of those crazy faxes/emails that said XBXB @ $0. Should You Put Your Annuity in an IRA? Let me start by answering that question.. Stock Market Horizons: Gold $3,000, Oil $70 In the last two decades, even though gold prices have dwindled from $850 to $350 an ounce, there are still market gurus who predict gold price to hit $3000 an ounce. Hecla seems to be quite bullish about the future. Creating Wealth by Gearing Up Gearing is where you borrow money to invest. As already mentioned, it is best to clear all your debt before looking at investment. Making It Second Nature Not long ago I was laying on my son's floor throwing one of his toy balls back and forth in the air to myself and I had a strange revelation. I noticed that as I threw the ball up in the air my left arm automatically started to move to where the ball was going to come down. Investing in Car Dealerships: Doing Your Homework This article attempts to help give the investor a broader basis upon which to decide whether a dealership merits their time, money and attention.Interviewing Factories and Financial InstitutionsLenders have an affirmative duty not to promiscuously disclose the financial condition of their debtors. For Entrepreneurs A SIMPLE Plan May Be Best Q: I own a small decorating business and I'll be the first to admit that I don't know anything about taxes or retirement plans. I'd like to set up a 401(k) or an IRA or some other kind of retirement plan for me and my three employees. Chile Leads the Latin Pack Everyone's talking about China. Don't miss the opportunities in the other CHI. Investing and Asset Allocation Sometimes you spend sleepless nights worrying about which stocks to buy and which to sell, which funds to own and which to dump and whether to get into bonds.All of these are legitimate concerns, but the greatest determinant of your success as an investor will not be your sagacity in selecting specific stocks, bonds or funds for your portfolio. Help with My Annuity The cries are heard from the distance, "I need help with my annuities." Nothing has changed. 25 Ways to Find Companies to Buy When you start your program to purchase your "ideal" company, you quickly realize that your ultimate success will depend on two primary skill sets: 1) Your ability to FIND viable companies that are for sale, and 2) Your ability to effectively qualify the potential acquisition investment once found.This article is about only step one, how to creatively find viable companies and one's that are able to be purchased. Consolidation Period The economic data reported Fri showed continued above trend growth with disinflation (at the core level, excluding food and energy) in the second quarter. Real output growth has slowed from about 4% in 2003 & 2004 to just over 3 1/2% so far this year, while a core inflation rate fell from 3% last quarter to 2%. Day Trading the SP Futures with Initial S/R and the NYSE TICK For instance, if the market moves up in the first 20 minutes of trading, touches the initial resistance zone, and then turns down, this implies that a good tradable downtrend move is likely to develop.How strong that new trend becomes is market-dependent. The Perfect Mutual Fund The Perfect Mutual Fund is the one you build yourself!The perfect Mutual Fund you build should have the objective of owning no more than 12 to 15 companies; owning shares in 12 companies would allow the diversity needed to sleep well at night and would provide a cash dividend every week of the year.The 12 companies (with staggered dividend payout dates) in your perfect Mutual Fund should not only provide a cash dividend every week of the year, the companies should also have a historical record of raising their dividends every year for at least the past 8 years (to eliminate risk). 5 Day Trading Tips for Success 1. How to Treat Gap Openings A gap up or gap down open is an emotional move, and it often will reverse course and turn in to "trap open". An Investment Real Estate Strategy Unknown To Most Is A Negative Amortization Loan If you want to make the most of your personal or investment real estate, you should consider a negative amortization loan. Mortgage amortization is basically mortgage balance reduction. How To Create Wealth In The Stock Market First and foremost, an opportunistic strategy for creating wealth in the stock market is needed. And the opportunistic strategy for creating wealth in the stock market must have two ingredients, a plan and a goal. Shareholders Meeting Changing With Times A significant number of corporations that settled accounts in the past year are ready to hold their annual shareholders meetings.In this year's meetings, more than 300 companies plan as their main focus of attention defense measures against hostile takeover bids. Investing in New Zealand - Learn how to Find Unique Investment Opportunities Investing in New Zealand might be much easier than investing in other western countries, thank to the excellent infrastructure, the low taxes and the assistance of the supportive NZ government.Technological Face of New ZealandNew Zealand has a unique reputation within the global market place. Use this Simple Trick its to Buy $100 Bills Direct from your Bank for only $97 Most People just don't understand the power of using their home as a Wealth Creation Tool. How many people do you know who have lived in the same house for 10, 15 or more years and have virtually no mortgage, You know the Type 'House Rich Cash Poor'.
|
| home | site map |
| © 2006 |
