Before I move on to the “Intro To Option Trading – Part 4″ here is a glossary of the option trading terms that we have covered so far. I have tried to keep the language as simple and less technical as I can, so it will help individuals who are new to options trading.
Call Option Contract
An option contract that gives the owner the right to purchase the underlying stock at a particular price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a call option, the contract is an obligation to sell the underlying stock if the option is assigned.
Put Option Trading
An option contract that gives the owner the right to sell the underlying security or stock at a specified price (its strike price) for a certain, fixed period of time (until its expiration). For the writer of a put option, the contract is an obligation to buy the underlying stock from the option owner if the option is assigned.
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Total price of an option contract
Strike / Strike Price
The price at which the owner of an option can purchase (call) or sell (put) the underlying stock. Used interchangeably with striking price, strike, or exercise price.
Expiration Date
The date on which an option and the right to exercise it cease to exist.
Margin / Margin requirement
The minimum equity required to support an investment position. To buy on margin refers to borrowing part of the purchase price of a stock from a brokerage firm.
Underlying Security / Stock
The security or stock being purchased or sold upon exercise of the option contract.
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