Thursday, January 29, 2009

Option Pricing

is a terminology used to describe a series of terms that determine the value of an option. In the next couple of posts I will give you those terms and why they are important to option pricing.

Wednesday, January 28, 2009

Exercise Price

the price at which the underlying security can be purchased (call option) or sold (put option). the exercise price is determined at the time the option contract is formed....


an action by a stockholder take advantage of a privilege offered by a company or other financial institution. This includes warrants options and other exotic financial instruments.

when you exercise your stock option you "trade in" your option for the actual stock....

Tuesday, January 27, 2009

Strike Price

The predetermined price at which an option can be exercised. For example, a buyer of a call option with a strike price of $45, would give the call option owner the ability to purchase shares in the underlying security at $45, before the option expires....

Stock Options Chain

On the Right is a picture of a stock option chain. A stock option chain is a list of options that you can buy or sell. As you can see at the top of the page is stock symbol.. AAPL which is Apple, Inc. Next you see below the Stock symbol is a drop down box of expiration dates of when the options expire. Each option, which have their own symbols are separated by Calls and Puts. In the middle is the strike price of each symbol (strike price will be my next post). Next to the symbols is a list of the BID & ASK for each symbol. The bid & ask is the cost to buy or sell each option. The bid would be the amount would sell the option for, and the ask would be the cost to buy it.

Monday, January 26, 2009

Boring Rhetoric!

another reason why I decided to write this blog is because when I was starting out trying to get into the market, I could never find one place with all of the information I needed. Either, I would have to pay hundreds or even thousands of dollars to learn definitions, strategies, and charts to make money. What kind of profit would I make by paying all that money? So... Stock Option, Call Option, Put Option... blah... blahh.. blah... is nothing but "boring rhetoric". But this is what I had to learn in order to get into the market to make money... which I have. So, this blog is for the people who want to learn the stock market, get into the market and make money.... and it's all in one place and it's free!... LOL!

Short Position

the sale of borrowed security commodity or currency with the expectation that the asset will fall in value.
in the context of options it is the sale (also known as "writing") of an options contract...
"borrowed" means ... you borrow shares or option contracts of a stock from the broker in an open market. Eventually you will have to pay back what was borrowed, you do that by buying back what you sold. If the stock falls in price you are buying back less than the original sale, and that's your profit.

Long Position

buying of a security such as a stock, commodity or currency with the asset will rise in value.
in the context of options, the buying of an option

Put Option definition

an option contract giving the owner the right, but not the obligation to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option which gives the right to buy....

The put option is used when you think that the stock is going down... like I said before.. remember these options expire on the 3rd Friday of the month.

Call Option definition

an agreement that gives an investor the right (but not the obligation) to buy a stock bond commodity or other instruments at a specified price within a specified time period....
A call options is a contract you buy or sell that is affilated with the underlying stock when you think the underline stock is going up.... remember the option expires every third Friday of the month.

My Introduction

This blog is with the intent of sharing information on trading stock options. I am an amateur trader... been trading for 3 years now. So, I figured that I could blog my experience as well as give tips on how to read charts and learn options trading terms. Please note, this is not an investment blog. I don't know what's the "hot stock of the week". I am not recommending any stocks to invest in.... So, with that being said, I would like to thank you for visiting my blog...and invite you to the would of options trading!