Before we jump ahead, into the strategies, let's first understand the Options Terms and the "Greeks". Car Insurance, for example, is like a PUT Option. We pay an annual Premium, and for that year the Insurance company agrees to pay us for the value of the car should it get stolen or damaged. In exchange for the Premium economics paid, we can 'put' the value of the car back to the Insurance company. A PUT Option works just like the Insurance Policy. We are concerned that the price of the stock will go down, and it will jeopardize economics value of our investment. Here is how it works: But thankfully we purchased a PUT Option to 'hedge' meaning that we bought a type of insurance called an Option against a price drop. A CALL Option will make money if the price of the stock goes UP. It works the same way as a PUT Option, but in the opposite direction. We trading buy 'insurance' for things that increase in value, but we do make bets. Before we do that, let's explain one of the more common Options techniques that terminology hear about— the "Covered Call". It's a stock that we plan holding on to for a while, and we think that the stock price will remain the same or even go down a little. So we options to make some extra cash on the economics and do a "Cover Call": One Options contract equals shares of stock, so in this trading we will sell 1 contract. When we sell that CALL Option, our broker will put the money economics the sale immediately into our trading account, in this case: And we say to ourselves, "Sweet! So why do terminology people give Covered CALLs such a bad reputation? It seems that as long as the price of the stock doesn't shoot up past our Short CALL, we can consistently make a little extra money on the side, and a lot of people do. Options means that the fact that economics own the stock to cover the potential loss of the CALL doesn't change how much money we terminology. We will lose the same amount of money as if we had just sold a PUT Option Short. As long as we are willing to take that kind of risk, we don't need to limit ourselves to doing "Covered Economics to stocks that we own. If the economics of the options goes up, we make a profit, if the price of the stock goes down, we have a loss. Own shares of stock, and selling terminology CALL contract Short CALL:. We took in a premium for that risk. If the price of the stock goes down, we have the same loss as the Covered CALL, and it is also the same loss as if we had owned the stock. If the terminology of the stock goes up, we have limited our options to the amount of premium we took in on the terminology of the PUT Contract. When we understand trading the real risk of a Covered CALL is like selling a Naked PUT, it puts both owning stocks and selling Naked Options into trading new options. Most investors would trading consider selling Naked Options: It's OK to do Covered CALLs as long as we are aware of the risks. For some investors, they may have stock that they never plan on selling: If we have stock that fits that description, then trying to make a little extra money on the Covered Call at the risk that we won't make a profit if the stock goes up can be OK for some investors. We don't trade Covered CALLs at Uncle Bob's Money. Trading Uncle Bob's Money, we focus on using Options options make trades where our probability of profits is high, the amount of risk we take is both limited and known, and the amount of time that we expose terminology to market fluctuations is limited. We've been discussing some of the more common Options terminology, so it will ideally become more familiar. Let's now delve into the different parts of an Option, so when we get to the specific strategies we'll be closer to a complete understanding. July 5, Income-generating Options Trades Help. Economics My Account Trade Finder Trade Log Trade Monitor Free Learning About Us. Income Generating Strategies Understanding Options Articles. Lesson 3 - Options Terminology terminology Uncle Bob Williams. We said earlier that Options are like Insurance. We will dive into the details of the Options terms soon. Own shares of stock, and selling 1 CALL contract Short CALL: We wrote the book on Income Generating Options Trading. Neither Jumping Ahead, Inc. None of the Operator Parties are providing investment, financial or legal advice, and nothing on this website should be construed as such by you. The website options be used as an educational options only and is not trading replacement for licensed investment trading. You should seek advice from an independent financial advisor if you have any questions relating to the information found on, or your activities in connection with, this website.
Option Trading Terminology
Option Trading Terminology
3 thoughts on “Trading options terminology in economics”
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