Trading Order Types
Option Cheat Sheet
- Call option - Contract that gives the buyer the right to buy stock from the seller at the low strike price and sell the same stock to the market for the higher market price.
- Put option - Contract that gives the buyer the right to buy the stock from the market at the lower market price and then sell the same stock to the seller at the high strike price.
- Strike Price - The price where the underlying stock would have to be (or better) in order to exercise the option.
- Option Expiration - Stated as the month and year in which the option contract expires. It is typically the close of trading on the third Friday of the month.
- In the money - Term used to describe an option where the market price of the underlying stock is above (for Call Option) or below (for Put Option) the strike price.
- Intrinsic value - That portion of the option premium that correlates to how much it is "in the money".
- Time value - That portion of the option premium that is not Intrinsic Value.
The farther away the current date is from the expiration date, the more Time Value you have.
- Net Debit - Type of transaction where you end up paying money to either open or close a position.
- Net Credit - Type of transaction where you receive money to open or close a position.
Option Naming SchemeThe table below will show you how to interpret the option chains you see on any website which lists option chains.
This first table will list all the codes used to represent the expiration month. So if you see an IBM option quote for IBMEA.X you will notice of course that the first 3 characters are for the IBM ticker itself. The next character is "E" which you will find in the table below.
The table below will show you how to interpret the rest of the IBM option symbol IBMEA.X.
Long Call Option Strategy
We know that IBM is the company ticker and that "E" is the expiration month. But what about "A"?
Well you can see from the chart below that "A" represents the strike price $105. That last part of the quote (".X") is used by some people to identify that security as an option type.