The Two kinds Of Stock Option Are Calls And PutsProvided By Options University You Must Understand The Different Types Of Stock Option
A call stock option gives the buyer the right but not the obligation
to buy a specific security at a specific price by a specific
date. Its a way of locking in the purchase price of the stock
option for a period of time.
A put stock option gives the buyer the right but not the obligation to sell a specific security at a specific price by a specific date. Its a way of locking in the sales price of a stock option for a period of time. The specific date is known as the contracts expiration date. On or prior to the expiration date the holder of the stock option contract has the right to exercise the stock option. The term exercise means the process by which the buyer of an option converts the stock option into a long stock position in the case of a call or a short stock position in the case of a put. The term assign or assignment means the process by which the seller of a stock option is notified of the buyers intention to exercise. Buyers of options exercise. The seller of a stock option is assigned. The strike price or exercise price is defined as the price at which the holder has the right to buy (for a call) or sell (for a put), the underlying security. Strike prices are quoted in dollars, i.e. May 50 calls means May $50.00 strike calls. There are several other important terms in a stock option contract: A long position is defined as any position which will theoretically increase in value should the price of the underlying security increase. Vice versa, the position will theoretically decrease in value should the underlying security decrease. The buying of a stock option, the buying of a call, or the sale of a put all constitutes a long position.
A short position is defined as any position which will theoretically increase in value should the price of the underlying security decrease. Vice versa, the position will theoretically decrease in value should the underlying security increase. The selling of a stock option, the selling of a call, or the buying of a put all constitute short positions.
The option class identifies the specific underlying security the stock option is written on. The option series describes the expiration month and strike price. As an example, lets use the Microsoft (MSFT) May 65 calls. MSFT is the option class. May 65 call is the option series. May is the expiration month and 65 is the strike price. Lets try one more. How about the Home Depot January 35 puts? Home Depot (HD) is the option class. January is the expiration month and 35 the strike price. All stocks and options are identified by symbol. We have discussed how the stock option itself has a symbol (stock symbol HD = Home Depot, while MSFT = Microsoft.) Options have symbols too. These symbols are standardized for any exchange traded (listed) stock option. A different letter identifies each specific months call or put. The chart below shows which letters coincide with which months calls and which months puts.
Following the month symbol is the strike price symbol. A letter represents each different strike price. These strike prices are also standardized for any listed stock option, as follows: For example, lets look at this symbol HD GF:
HD is the stock symbol that represents Home Depot G signifies the month and type which is July calls F indicates strike price that is 30 Discover these secret option trading strategies that will have your friends calling YOU 'the options expert' Click here!
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