Stock Option - An option is a contract
where one person sells an option, that person is known as the option
writer who then sells it to an option buyer, referred to as the
option holder. The buyer of the option now has the right but does not
have to buy (call) or sell (put) the security at the strike price,
which was agreed to when the seller sold the option to the buyer. The
option may be exercised during the time specified in the contract.
Each option represents 100 shares of the underlying security. Mini
options represent 10 shares of the underlying securities but are only
available on AAPL, AMZN, SPY, and SPX.
Call Option - When a buyer acquires a
call option, which is a contract where the buyer can but is not
obligated to buy the underlying at a defined price within a certain
amount of time. When a call option is bought, the buyer expects the
price of the underlying to increase, and the call option will
increase in value as the underlying increases.
Put Option - When a buyer acquires a put
option, which is a contract where the buyer can but is not obligated
to sell the underlying at a defined price within a certain amount of
time. When a put option is bought, the buyer expects the price of the
underlying to decrease and the put option will increase in value as
the underlying decreases.
Strike Price - A strike price is the
price where an option buyer can exercise the contract. When using
call options, the strike price is where the buyer can buy the
security regardless of where the security is trading currently When
using put options, the strike price is where the buyer of the option
can sell the specified security regardless of where the security is
trading currently.
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