A common misunderstanding among new option traders is that 80% to 90% of all option contracts expire worthless, so a seller of option premium will have a higher win rate than a trader that buys options. This belief misinterprets a statistic published by the Chicago Board Options Exchange (CBOE) that only 10% of option contracts […]
Do 80% of Options Expire Worthless? Read More »
Options are interchangeable financial contracts that give the buyer the right to call or put a stock or commodity on someone based on the strike price and the underlier. Options contracts are are not assets like bonds that own debt or stocks that are ownership of equity in a company. they are more bets on
Options Trading Explained: Sell to Open, Buy to Close Read More »
Here are five ways to effectively manage risk as an option trader: The first step in managing risk as an option trader is position sizing. When buying options the amount of capital you spend buying an option contract long is the most you can lose if your option expires worthless before expiration. The best way
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Open interest quantity shows the total number of active contracts in each strike price and expiration date. Open interest is one of the columns displayed in an option pricing chain along with the current contract price, price change, bid price, ask price, and volume. Open interest shows the current total number of option contracts that
What is Open Interest in Options? Read More »
A put option contract gives the buyer of the contract the right to sell the underlying asset to the seller of the option at the strike price on the day of expiration. The put buyer has the right to ‘put’ the asset or sell the asset to the put option seller on the date of
What is a Put Option? Read More »
Option pricing is based on the current probabilities that the option will expire in-the-money. Option contract prices are determined using the Black-Scholes pricing model for time, volatility, and the distance from the strike price. Basically the odds that the option will expire in-the-money with some intrinsic value are the main factor that goes into the
An Introduction On How To Trade Options Read More »
If you are interested in trading options the first place you must start is having a basic understanding of what determines there price. Understanding what determines their value and how they move in step with the underlying stock is the first crucial step before you start trading them. Not understanding what can cause sudden drops and spikes in
How Stock Options are Priced Read More »