Link4knowledge - Trading - Option Trading

"Knowledge is Power!"

Option Basics | Option Strategies | Trading Strategies
Option FAQ | Glossary

Option Strategies

Buying and Selling Call
Buying and Selling Put
Covered and Naked Call
Protective Put

Buy/Sell Call Option
A person can buy or sell a Call.

Call Buyer
-> pay option premiums to the seller
-> has the Right (but not the obligation) to BUY the underlying shares.
( example you bought a ABC May 27.5 Call. On or before expiration Friday, assume ABC is at $35 per share. You have a Call option, you can exercised to purchase 100 shares of ABC Stock at $27.50 per share)

Call Seller
-> collect Premium from buyer
-> has the potential obligation to SELL the underlying share at Strike Price
-> if share price is not at or over the Strike Price at expiration date, the seller earn the premium
-> if the option is excerised by the buyer, the seller has to sell the underlying share to the buyer at the Strike Price.
( example you sold a ABC May 27.5 Call. On or before expiration Friday, assume ABC is at $35 per share. The buyer exercised to purchase 100 shares of ABC Stock, you have the obligation to sell the underlying share to him at $27.50 losing $7.50 per share)

Buy/Sell Put Option
A person can buy or sell a Put.

Put Buyer
-> pay option premiums to the seller
-> has the Right (but not the obligation) to SELL the underlying shares.
( example you bought a ABC May 27.5 Put. On or before expiration Friday, assume ABC is at $22.50 per share. You have a Put option, you can exercised to sell 100 shares of ABC Stock at $27.50 per share earning $5/share)

Put Seller
-> collect Premium from buyer
-> has the potential obligation to BUY the underlying share at Strike Price
-> if share price is higher than the Strike Price at expiration date, the seller earn the premium since the option is not excercised.
-> if the option is excerised by the buyer, the seller has to buy the underlying share at the Strike Price.
( example you sold a ABC May 27.5 Put. On or before expiration Friday, assume ABC is at $22.50 per share. The buyer exercised to purchase 100 shares of ABC Stock, you have the obligation to buy the underlying share to him at $27.50)

Hosted by www.Geocities.ws

Option Basics \| Option Strategies \| Trading Strategies Option FAQ \| Glossary


	Option Strategies Buying and Selling Call Buying and Selling Put Covered and Naked Call Protective Put Buy/Sell Call Option A person can buy or sell a Call. Call Buyer -> pay option premiums to the seller -> has the Right (but not the obligation) to BUY the underlying shares. ( example you bought a ABC May 27.5 Call. On or before expiration Friday, assume ABC is at $35 per share. You have a Call option, you can exercised to purchase 100 shares of ABC Stock at $27.50 per share) Call Seller -> collect Premium from buyer -> has the potential obligation to SELL the underlying share at Strike Price -> if share price is not at or over the Strike Price at expiration date, the seller earn the premium -> if the option is excerised by the buyer, the seller has to sell the underlying share to the buyer at the Strike Price. ( example you sold a ABC May 27.5 Call. On or before expiration Friday, assume ABC is at $35 per share. The buyer exercised to purchase 100 shares of ABC Stock, you have the obligation to sell the underlying share to him at $27.50 losing $7.50 per share) Buy/Sell Put Option A person can buy or sell a Put. Put Buyer -> pay option premiums to the seller -> has the Right (but not the obligation) to SELL the underlying shares. ( example you bought a ABC May 27.5 Put. On or before expiration Friday, assume ABC is at $22.50 per share. You have a Put option, you can exercised to sell 100 shares of ABC Stock at $27.50 per share earning $5/share) Put Seller -> collect Premium from buyer -> has the potential obligation to BUY the underlying share at Strike Price -> if share price is higher than the Strike Price at expiration date, the seller earn the premium since the option is not excercised. -> if the option is excerised by the buyer, the seller has to buy the underlying share at the Strike Price. ( example you sold a ABC May 27.5 Put. On or before expiration Friday, assume ABC is at $22.50 per share. The buyer exercised to purchase 100 shares of ABC Stock, you have the obligation to buy the underlying share to him at $27.50)