Terminology in option trading
Option Strike Price
A strike price is set for each option by the seller of the option, who is also called the writer. When you buy a call option, the strike price is the price at which you can buy the underlying stock if you want to use the option. For example, if you buy a call option with a strike price of 500, you have a right, but no obligation, to buy that stock at 500
It is worthwhile to do so if the underlying stock is trading above 500. In this case, you can also sell the call for a profit. The profit is approximately the difference between the underlying stock price and the strike price. Alternatively, you can use, or exercise your option and buy the stock at 500, even if it is trading at 550 on the stock exchange.
When you buy a put option, the strike price is the price at which you can sell the underlying asset. For example, if you buy a put option that has a strike price of 500, you have the right to sell that stock at 500. It is worthwhile to do so if the underlying stock is actually trading below 500.
In this case, you may also sell the put for a profit. The profit is approximately the difference between the strike price and the underlying stock price. Just like the call option, you may also exercise your option and sell/short the stock at 500, even if it is trading at 450on the stock exchange.
Peoples trading in options is well aware of the fact that they have to fight against the time decay to make the profit. Options strategies that are being practiced by professionals are designed with an objective to have the time factor work for them. ‘Short Iron Condor’ is one such strategy that can make the time decay work in your favour.
A Short Iron Condor is executed by simultaneously selling an Out-of-the-money PUT spread and an out-of-the-money CALL spread for the same underlying security and expiration date. Both spreads generally have the same width and they are roughly the same equidistant from the current stock price.
The trader hopes that the stock price will remain between these positions at the time of expiration. It’s a limited risk strategy and works best when you are hoping that the price will remain between the sold call and put strike price.
Trade with one of the best option trading tips provider company in India.
A strike price is set for each option by the seller of the option, who is also called the writer. When you buy a call option, the strike price is the price at which you can buy the underlying stock if you want to use the option. For example, if you buy a call option with a strike price of 500, you have a right, but no obligation, to buy that stock at 500
It is worthwhile to do so if the underlying stock is trading above 500. In this case, you can also sell the call for a profit. The profit is approximately the difference between the underlying stock price and the strike price. Alternatively, you can use, or exercise your option and buy the stock at 500, even if it is trading at 550 on the stock exchange.
When you buy a put option, the strike price is the price at which you can sell the underlying asset. For example, if you buy a put option that has a strike price of 500, you have the right to sell that stock at 500. It is worthwhile to do so if the underlying stock is actually trading below 500.
In this case, you may also sell the put for a profit. The profit is approximately the difference between the strike price and the underlying stock price. Just like the call option, you may also exercise your option and sell/short the stock at 500, even if it is trading at 450on the stock exchange.
Peoples trading in options is well aware of the fact that they have to fight against the time decay to make the profit. Options strategies that are being practiced by professionals are designed with an objective to have the time factor work for them. ‘Short Iron Condor’ is one such strategy that can make the time decay work in your favour.
A Short Iron Condor is executed by simultaneously selling an Out-of-the-money PUT spread and an out-of-the-money CALL spread for the same underlying security and expiration date. Both spreads generally have the same width and they are roughly the same equidistant from the current stock price.
The trader hopes that the stock price will remain between these positions at the time of expiration. It’s a limited risk strategy and works best when you are hoping that the price will remain between the sold call and put strike price.
Trade with one of the best option trading tips provider company in India.
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