The act of engaging in trade of securities, specifically in the options market. Investors are given the choice to buy or sell the security at a specific price by a specific time, but they are not required to do so. Reproduction of all or part of this glossary, in any format, without the written consent of Options stock trading definitions, Inc. is prohibited.Disclaimer and Copyright. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.
Just keep forging ahead, and everything will become more apparent over time.Long — This term can be pretty confusing. American options, which make up most of the public exchange-traded stock options, can be exercised any time between the date of purchase and the expiration date of the option. The option exchanges have consistently reported record option trading activity year-after-year.
Speculators leverage stock positions by trading options while investors hedge risk through option trading.When you purchase a call option on a stock you have the right to buy shares at a specified price (the strike price) within a specified period of time (expiration date). When you purchase a put option, you have the right to sell shares at a specified price (the strike price) within a specified period of time (expiration date). The key concept is that you have the right, but not the obligation to take action.
Some options expire worthless while others are exercised. For the employee incentive, see Employee stock option. The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium. A AdjustmentsA change to contract terms due to a corporate action (e.g., a merger or stock split). Depending on the corporate action, different contract terms (including strike price, deliverable, expiration date, multiplier etc.) could be adjusted.
An adjusted option may options stock trading definitions more or less than the usual 100 shares. For example, after a 3-for-2 stock split, the adjusted option will represent 150 shares. For such options, the premium must be multiplied by a correspA comprehensive list of option-oriented terms and their definitionsThese option trading terms are used with some frequency throughout our website and in our various publications AssignmentThe process by which a seller (or writer) of an option is notified that he is being required to fulfill his obligation to sell stock (call assignment) or buy stock (put assignment).
options stock trading definitions BackspreadAny spread in which in-the-money options are sold and a greater quantity of out-of-the-money options are bought. In a more general sense, it may refer to any strategy that makes money when the market becomes volatile. Bear spreadA spread which makes money if the underlying stock or future declines in price. Typically constructed by buying puts at one strike and selling a like number of puts with a lower strike. Break-even PointThe point at which a strategy or position would neither make nor lose money (generally, a.