Investors buy and sell options just like stocks. There are two basic types of options: The call option the put option The Call Option The call option is the right to buy the underlying security at a certain price on or before a certain date. You would buy a call option if you anticipated the price of the underlying security was going to rise before the option reached expiration.
The Put Option The put option is the right to sell the underlying security at a certain price on or before a certain date. You would buy a put option if you felt the price of a stock was going down before the option reached expiration. Options are quoted in per share prices, but only sold in 100 share lots. For example, a call option might be quoted at $2, but you would pay $200 because options are always sold in 100-share lots.
The Strike Price (or Exercise Price) is price the underlying security can be bought or sold for as detailed in the option contract. You identify options by the month they expire, whether they are a put or call option, and the strike price. For example, an “XYZ April25 Call” would be a call option on XYZ stock with a strike price of 25 that expires in April. The Expiration Date is the month in which the option expires. All options expire on the third Friday of the month unless that Friday is a holiday, then the options expire on Thursday.
Options are not for the beginning investor, but do offer advanced traders another tool for their investment arsenal. Contact Us