[iii] summary of US stock options glossary

SUMMARY

	Call stock option				Put stock option
CONTRACT	Each contract = 100 shares of the stock The buyer (holder) has right to buy 100 shares at				Each contract = 100 shares of the stock The buyer has right to sell 100 shares at
STRIKE	specific / fixed price				specific price
EXPIRY	Before the expiry date (last day is the 3rd Friday of the month of expiry)				Before the expiry date (last day is the 3rd Friday of the month of expiry)
OPTION WRITER	Is obliged to sell the 100 shares of the said stock to the holder at the strike price before or on the last day				Is obliged to buy the 100 shares of the said stock to the holder at the strike price before or on the last day
PREMIUM	Intrinsic value + time value
INTRINSIC VALUE	Stock price (as quoted on the Exchange) less strike price { if amount –ve, then no value}			Strike price less stock price
TIME VALUE	The remaining value from current time until the last day {i.e. the nearer to the last day, the lesser will be the time value – decay}
IN –THE-MONEY (ITM)	Stock price > strike price (higher than strike)			Stock price < strike price
AT-THE-MONEY (ATM)	Stock price = strike price			Stock price = strike price
OUT-OF-THE-MONEY (OTM)	Stock price < strike price (lower than strike)			Stock price > strike price
	stock price strike price  description     75 ITM $80 80 ATM 85 OTM			stock price strike price  description     75 OTM $80 80 ATM 85 ITM
OPEN INTEREST	Number of contracts opened and trading on the Exchange (prefer at least 300 contracts for each strike you wish to trade the option)
DELTA	The fraction of the stock price movement, that increases as the stock price rises.  Delta for call option is from 0 to 1.0 (OTM to ITM) Delta for put option is from -1.0 to 0 Choose ATM or ITM where delta is about 0.5 (towards 1.0) for call; and -0.5 (towards -1.0) for put
IMPLIED VOLATILITY	Volatility of the options Prefer I/V of 60% or lesser