Options Basics Tutorial
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If you are new to options, this page can be used as a beginner tutorial, guiding you through the basic terms and concepts.
These are not only essential for successful options trading, but also needed for understanding more advanced topics such options tutorial option pricingvolatilityGreeksor option strategies. Overview of Basic Terms and Concepts — If you already know a bit about options, you can use this page as a checklist to make sure you understand all the fundamentals. What Is an Option? Underlying Price — Three different prices often come up when discussing options.
It is important to understand their differences and how they are related to each other. Exercising Options and Expiration — When you hold options tutorial option, there are three ways for you to stop holding it: Intrinsic Value — Explaining the concept of intrinsic value, which is in fact not limited to options. When underlying price is at or below the strike price, intrinsic value options tutorial zero, because exercising the option would not get the stock cheaper than in the stock market.
Strike Options tutorial and Intrinsic Value of Put Options — Put option intrinsic value follows the same logic as calls, only the direction is reverse, beceause a put represents a right to sell, not buy, the underlying security. Option Intrinsic Value Formulas — A summary of call and put intrinsic value formulas.
They are closely related options tutorial intrinsic value and the relationship between strike price and underlying price. They allow us to easily categorize options in three groups, with each having some shared characteristics when it comes to option premium, time value, and practical trading.
In the Money vs. At the Money Options: Options tutorial latter is less options tutorial to calculate, as it depends on a number of factors, such as time to expiration, volatility, or interest rates. Understanding time value and how options tutorial reacts to different factors options tutorial the key to profitable options trading.
Options tutorial it all together, the following two pages explain how call and put option prices are driven by changing intrinsic and time value:. Terminology of Option Positions — There are four basic positions options tutorial can create with options: Option options tutorial are often referred to as long vs.
It is important what these labels mean, as they are often source of confusion. Directional Trades with Options — This page explains how you can use options to speculate on underlying price going up or down, just like you would do by trading the underlying stock itself.
It turns out options have a number of advantages and differences compared to stock trading. Understanding the basic concepts is really just the beginning. It is necessary, but far from enough for successful options options tutorial. From here you can proceed to more advanced tutorials, which explaind option pricing, the Black-Scholes modeloption Greeksand option strategies.
This page provides some further clarification. Spot price is just another name for market price, i. If you don't agree with any part of this Agreement, please leave the website now.
All information is for educational purposes only and may be inaccurate, incomplete, outdated or plain wrong. Macroption is not liable for any damages resulting from using the content. No financial, investment or trading advice is given at any time. Home Calculators Tutorials About Contact. Tutorial 1 Tutorial 2 Tutorial 3 Tutorial 4. Intrinsic Value Intrinsic Value — Explaining the concept of intrinsic value, which is in fact not limited to options.
The following pages explain time value for different kinds of options in greater detail: What Next Understanding the basic concepts is really just the beginning.