The 6-Week Options Trading Kickstarter: What Are Options, and Why Should We Care About Them?
Steve Smith breaks down the basics of options trading.
So let’s start at the very beginning by learning what options are, and why we should care about them.
The Option Contract
We use the term “option contract” for a reason since an options transaction is literally a contract between the buyer and seller. Contracts come in two forms: puts and calls.
A call option gives the buyer the right, but not the obligation, to buy shares in a security at a specified price (known as the strike price) within a given time frame that ends on a specific date (which we call the expiration date).
On the other side of the trade, the seller of the call option has the obligation to sell said security at the specified strike price within the time frame. In a standard option, each contract represents 100 shares of the underlying equity.
For example, the buyer of an Apple September $600 call has the right to purchase 100 shares of Apple at $600 at anytime up to the September 22 expiration date, regardless of what price Apple shares are trading at the time.
The seller (also knows as the writer) of that September $600 call has the obligation to sell 100 shares of Apple at $600 at any point prior to the expiration date.
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