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https://www.youtube.com/watch?v=VJgHkAqohbU

Websites

What are Options? Types, Spreads, Example, and Risk Metrics (investopedia.com)

What are Options?

Options are contracts that give the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price (strike price) on or before a specified date (expiration date). Option contracts usually represent 100 shares of an underlying asset.

Types of Options

• Call Option: Gives the holder the right to buy the underlying asset at the strike price before the expiration date. A call option will therefore become more valuable as the underlying security rises in price
• Put Option: Gives the holder the right to sell the underlying asset at the strike price before the expiration date.

Key Terms

• Strike Price: The price at which the underlying asset can be bought or sold.
• Expiration Date: The date when the option contract expires.
• Premium: The price paid for the option contract.
• In-the-money (ITM), At-the-money (ATM), Out-of-the-money (OTM): Describes the relationship between the strike price and the current price of the underlying asset.
• Option Chain: A list of all available options contracts for a particular security.

Options Strategies

• Covered Call: Selling a call option while simultaneously holding the underlying asset.
• Protective Put: Buying a put option to protect against a decline in the price of the underlying asset.
• Straddle: Buying both a call and a put option with the same strike price and expiration date, anticipating significant price volatility.
• Spread Strategies (Bull Call Spread, Bear Put Spread, etc.): Combining multiple options contracts to limit risk and potential reward.