CHAPTER 6

Introduction to Options

Weekly options represent a great trading opportunity, but before you can trade them, you need to know the definitions that are standard in the industry. I don't want to flood you with complicated mathematical models and a 30-page vocabulary, but you must master some terms before you can attempt to trade. This chapter will deal with essential vocabulary; a complete glossary of terms is included in the back of the book. Once you have mastered the vocabulary you will be prepared to learn how the option model functions.

images Basic Option Glossary

This list is in alphabetic order and refers to all serial options. It is not necessary that you have complete command of this list in order to trade the weekly options, but you should read it to familiarize yourself with general option terms.

ASK, ASKED PRICE: This is the price that the trader is willing to sell an option or security.

AT-THE-MONEY (ATM): An at-the-money option is one whose strike price is equal to (or, in practice, very close to) the current price of the underlying asset.

ASSIGNMENT: The obligation an option writer has to deliver the underlying asset at the specific price and time. If it is a call, the writer must sell the buyer the underlying asset at the specific strike called for in the contract. If it is a put, the writer must buy from the buyer the asset at a specific strike price called for ...

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