What Are Options?
A Standardized Financial Contract with certain limited life.
Is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date?
Has two contracting parties – a BUYER and a SELLER (writer).
Gains the Right to participate in the movement of the underlying by paying the seller a Premium.
Can convert the Right of surrogate participation into actual possession of the stock by Exercising his Option anytime during the life of the Contract.
Call Option Seller
The Obligation to SELL the stock at any time during the life of the contract.
Option Seller (Writer)
Assumes the risk of the movement of the underlying in exchange for receiving the Premium.
Risks Assignment of the stock at any time during the life of the Contract under the obligation incurred from the Buyer.
Put Option Seller
The Obligation to BUY the stock at any time during the life of the contract.
Defines the value to be exchanged
The “Price” an Option Buyer pays and “amount” an Option Seller receive
Term of enforcement
Types of Options
Call: Buy a Call: If you expect Stock price move up; Sell a Call, if you future stock price to move lower.
Put: Buy a Put, if you expect future stock price move lower; Sell a Put if you expect the future price to move higher.
Options Quote Example
SELL 5 DAR JUL 24 PUT @ 3.70
5: Number of Option Contracts (5 X 100 shares)
DAR: The Underlying Stock
JUL: The option expires on the 3rd Friday of this month.
24: the Strike Price. The price at which the DAR stock will change hands if exercised
PUT: Type of Option
@ 3.70: Premium, your income because you sell Option. If you sell 500 shares, so your income generated is 500x$3.70= $ 1,850