A Thread 🧵#Option Terminologies for Beginners ...
Must read for beginners in #StockMarket.
(RT to maximize reach.)
#Options #CallOption #PutOption #StockMarket #Trading
Must read for beginners in #StockMarket.
(RT to maximize reach.)
#Options #CallOption #PutOption #StockMarket #Trading
🌟Definition of Option 🌟
#Option is a #derivative product. It gives the buyer of an option the right, but not the obligation to buy or
sell an underlying asset at a set price on or before a certain date.
#Option is a #derivative product. It gives the buyer of an option the right, but not the obligation to buy or
sell an underlying asset at a set price on or before a certain date.
There are two types of Option contracts - #Call and #Put.
A call option gives the holder the right to buy a stock.
A put option gives the holder the right to sell a stock.
👇(Both call & put are explained in detail below)👇
A call option gives the holder the right to buy a stock.
A put option gives the holder the right to sell a stock.
👇(Both call & put are explained in detail below)👇
#Call #Option gives buyer right but not obligation to buy a given quantity of underlying asset, at a given price on or before a given future date. In other words a call option entitles buyer to either seek delivery of shares from writer if he so desires or let call option lapse.
Investors most often buy calls when they are bullish on a stock or other security because it offers leverage.
#Put #Options gives buyer right but not obligation to sell a given quantity of the underlying asset at a given price on or before a given date. In other words a put option buyer is entitled to give delivery of shares to the writer if he so desires or let the put option lapse.
Investors most often buy puts when they are bearish on a stock or other security.
Now let us jump to explanation of important #Option Terminologies like Buyer and Writer of an Option, Strike Price, Premium, Underlying Price, Intrinsic Value, Time Value, Expiry Date, etc.
(read and understand them carefully before trading in options)
(read and understand them carefully before trading in options)
🌟Buyer of an Option 🌟
The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer.
The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/writer.
🌟Writer of an Option🌟
The writer of a call/put option is the one who receives the option premium and is there by obliged to sell/buy the asset if the buyer wishes to exercise his option.
The writer of a call/put option is the one who receives the option premium and is there by obliged to sell/buy the asset if the buyer wishes to exercise his option.
Image below shows difference between #Option Buyer & Seller
Advice : New comers or people who don't have substantially trading capital which they can afford to loose should never sell or write options.
Selling options requires huge margin and you are exposed to unlimited risk
Advice : New comers or people who don't have substantially trading capital which they can afford to loose should never sell or write options.
Selling options requires huge margin and you are exposed to unlimited risk
🌟Strike Price🌟
The price specified in the options contract is known as the strike price or the exercise price.
The price specified in the options contract is known as the strike price or the exercise price.
🌟Underlying Price🌟
It is the price at which the underlying asset, from which the option derives its price, trades in the spot market.
It is the price at which the underlying asset, from which the option derives its price, trades in the spot market.
🌟Option Premium🌟
Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.
Option Premium has two components - Intrinsic Value & Time Value
(Explained ahead)
Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium.
Option Premium has two components - Intrinsic Value & Time Value
(Explained ahead)
🌟Expiration Date🌟
The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.
The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.
🌟Exercising of an Option Contract🌟
Exercising of an option contract is the act of claiming your right to buy the options contract at the end of the expiry.
Exercising of an option contract is the act of claiming your right to buy the options contract at the end of the expiry.
🌟Intrinsic value of an Option🌟
Intrinsic value is calculated as the difference of the current price of the underlying asset and the strike price of the option.
Intrinsic value is calculated as the difference of the current price of the underlying asset and the strike price of the option.
🌟Time value of an Option🌟
It is the difference between its premium and its intrinsic value. Both calls and puts have time value. The longer the time to expiration, the greater is an option’s time value. At expiration, an option has no time value.
It is the difference between its premium and its intrinsic value. Both calls and puts have time value. The longer the time to expiration, the greater is an option’s time value. At expiration, an option has no time value.
Types of Options depending on Intrinsic value -
✅In-the-Money (ITM)
✅At-the-Money (ATM)
✅Out-of-the-Money (OTM)
✅In-the-Money (ITM)
✅At-the-Money (ATM)
✅Out-of-the-Money (OTM)
Beginners can read this 📗available in English, Hindi, Gujarati & Marathi before trading in Options
Simplified Approach to Option Strategies
English - amzn.to/3qcJWeB
Hindi - amzn.to/3b0OFvp
Marathi - amzn.to/2MDCECO
Gujarati - amzn.to/3sI9Atj
Simplified Approach to Option Strategies
English - amzn.to/3qcJWeB
Hindi - amzn.to/3b0OFvp
Marathi - amzn.to/2MDCECO
Gujarati - amzn.to/3sI9Atj
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