In the case of stock options, that asset is shares of a company's stock. The option is a contract that creates an agreement between two parties to have the option to sell or buy the stock at some point in the future at a specified price. The price is known as the strike price or exercise price.
What Vocab words should you know before trading stock options?
Stock options have a few special vocab words to know before trading them: Expiration date. Date up until which an option contract is good Strike price. Contracted price by which the contract can be exercised. Option premium. Cost associated with purchasing or selling an option made up of intrinsic and extrinsic values.
What is options trading?
Options trading is logistically complex and comes with the risk of a highly competitive market and sophisticated investors. Options are traded on all types of securities (stocks, bonds, commodities) and currencies, through multiple exchanges. To start, it is important to understand what all of the building block terms mean:
When do stock options expire?
The expiration date for listed stock options in the United States is typically the third Friday of the contract month (the month when the contract expires). However, when that Friday falls on a holiday, the expiration date is on Thursday immediately before the third Friday. There are two distinct styles of options: American and European :
