Option Trading Lesson 1.1

Options can provide opportunities when used correctly and can be harmful when used incorrectly.

• An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date.
• People use options for income, to speculate, and to hedge risk.
• Options are known as derivatives because they derive their value from an underlying asset.
• A stock option contract typically represents 100 shares of the underlying stock.

Underlying asset (股票或ETF 指數)

For example: AAPL, TSLA, QQQ, SPY

Strike price (行權價)

Price at which an option can be exercised. 

Known maturity dates (到期日)

Date at which an option expires and becomes worthless.

Premium (期權金)

This is the price at which at an option is bought or sold.

Basic Concept: 

Long and Short

• There are two types of trade:  Long 俾錢(Buy) and Short 收錢(Sell).
• 錢= 期權金

Put and Call

• Call= 看升bullish on the market
• Put= 看跌 bearish on the market

Long Put and call

• You buy a call if you thought the price of the underlying asset was set to rise.
• Alternatively, you’d buy a put if you thought the price of the underlying asset might fall.
• You gain profit when the price of the underlying asset goes in your predicted direction.

Short Put and call

• You sell a call if you thought the price of the underlying asset was set to rise at certain strike price.
• Alternatively, you sell a put if you thought the price of the underlying asset might fall at certain strike price.

Source: Investopedia