Although there are hundreds of terms that are utilized in the financial language,newbies need to understand first the most important and frequently utilized words.

Option – is the right of the buyer to either buy or offer the hidden possession at a fixed price and a set date. At the end of the contract,the owner can work out to either offer the option or buy at the strike rate. The owner can pursue the contract but she or he is not obligated to do so.

Call Option – provides the owner the right to buy the hidden possession.

Put Option – provides the owner the right to offer the hidden possession.

Exercise – is the action where the owner can choose to buy (if call option) or sell (if put option) the hidden possession or,to disregard the contract. He must send a workout notice to the seller if the owner chooses to pursue the contract.

Expiration – is the date where the contract ends. After the expiration and the owner does not exercise his/her rights,the contract is ended.

In-the-money – is an option with an intrinsic worth. The call option is in-the-money if the hidden possession is higher than the strike rate. If the hidden possession is lower than the strike rate,the put option is in-the-money.

Out-of-the-money – is an option without any intrinsic worth. The call option is out-of-the-money if the trading rate is lower than the strike rate. If the trading rate is greater than the strike rate,the put option is out-of-the-money.

Balancing out – is an act by which the owner of the option exercises his right to buy or offer the hidden possession prior to completion of the contract. This is done if the owner feels that the success of the stock has reached its peak within the date of the contract.

(Option seller) Writer – is the seller of the hidden possession or the option.

Option Seller – is the individual who obtains the rights to convey the option.

Strike Price – is the rate at which the underlying stock must be sold or acquired if the contract is worked out. The strike rate is clearly mentioned in the contract. For the buyer of the option to earn a profit,the strike rate must be lower than the present trading rate of the stock. If the contract mentions that the strike rate of a specific stock is $20 and the present trading rate at the end of the contract is $25,the buyer can exercise his or her rights to pursue the contract,therefore earning $5 per stock.|For the buyer of the option to make an earnings,the strike rate must be lower than the present trading rate of the stock. If the contract mentions that the strike rate of a specific stock is $20 and the present trading rate at the end of the contract is $25,the buyer can exercise his or her rights to pursue the contract,therefore earning $5 per stock.}

The quantity of the option premium is figured out by numerous aspects such as the type of the option (call or put),the strike rate of the present option,the volatility of the stock,the time remaining up until expiration and the rate of the hidden possession to date. If you are buying 1 option contract (equivalent to 100 share lots) at $2.5 per share,you must pay an overall quantity of $250 as the option premium (1 option contract x 100 shares x $2.5 per share = $250).

The call option is out-of-the-money if the trading rate is lower than the strike rate. For the buyer of the option to make an earnings,the strike rate must be lower than the present trading rate of the stock. The quantity of the option premium is figured out by numerous aspects such as the type of the option (call or put),the strike rate of the present option,the volatility of the stock,the time remaining up until expiration and the rate of the hidden possession to date. Taking into account these aspects,the total quantity of the option premium is number of option agreements,increased by contract multiplier. If you are buying 1 option contract (equivalent to 100 share lots) at $2.5 per share,you must pay an overall quantity of $250 as the option premium (1 option contract x 100 shares x $2.5 per share = $250).

Wealthpress helps you: Learn Option Trading Important Terms
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