Options Trading Concepts
Learn the basic terminology of options, calls, puts, strike price, expiry, premium, intrinsic value and the risks associated with derivatives.
Options Trading Concepts
Options are derivative contracts whose value is linked to an underlying asset. They have specific contractual terms and can involve substantial complexity and risk.
Call and Put Options
- Call option: Gives the holder a contractual right to buy the underlying at the specified terms.
- Put option: Gives the holder a contractual right to sell the underlying at the specified terms.
Strike Price
The strike price is the price specified in the option contract for the underlying transaction.
Premium
The premium is the price paid by an option buyer to acquire the option contract.
Expiry
Options have an expiry date or expiry time according to the relevant contract specifications. Contract specifications should always be checked before trading.
Why Options Need Careful Study
Options involve concepts such as time value, volatility and sensitivity to changes in the underlying asset. Some strategies can create significant losses, and certain positions can have complex risk characteristics.