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Today's Quote
Inside of every problem lies an opportunity.
~Robert Kiyosaki
Option Trading - Table of Contents
Option Trading: Option Basics
Option Trading: Buying and Selling Option
Option Trading: FAQ
Option Trading: Glossary
Buying and Selling Option
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)