Like most avenues for investing, the world of options trading has developed its own series of shortcuts and abbreviations to express common concepts and frequently used information.  Even though options trading incorporates only four types of trades involving buying or selling puts or calls, the various attributes that options contracts have makes it imperative that [...]

Each series of options (a series is a set of contracts that all have the same underlying stock) belongs to a particular expiration cycle.  There are three fixed expiration cycles throughout the year which results in contracts having a standard three month duration: January, April, July, and October (JAJO) February, May, August, and November (FMAN) [...]

There are three factors that determine the premium charged for an option contract.  Intrinsic value, time value, and extrinsic value.  I’ve discussed intrinsic value vs time value in other articles so today I’m going to talk about extrinsic value. First off, here’s a quick recap of what intrinsic and time value represent. Intrinsic value relates [...]

The value of options contracts are based on the market price of the underlying stock.  What’s more, option contracts exist for only a few brief months so what value they borrow from the stocks they represent is fleeting.  Due to these characteristics and the fact that a contract can go from worthless (out of the [...]

When valuing options, a lot depends on the underlying stock the option represents.  After you get past comparing the strike price to the current share price and evaluating how long the option has until expiration, the rest is how likely you think the price of the underlying stock is to show enough movement to make [...]

Although there are many mathematical definitions of put call parity on the web (here’s Wikipedia’s version if you need something to put you to sleep), in this article I’m going to ignore the mathematical theory behind put call parity and simply tell you how it affects you as an options trader. In short, it probably [...]

A bull put spread (or bull put credit spread) is a type of credit spread used in options trading to profit on small upward movements in stock price.  Because the strike price of stock options contracts can often be so far removed from the current market price of the stock, this option strategy was designed [...]

An option contract is an agreement between a seller and a buyer that gives the buyer the opportunity to force the seller to fulfill the terms of the contract at any time before that contract expires.  The buyer doesn’t have to force the terms of the contract but has the option to at any time [...]

Like that gallon of milk in your refrigerator or the newest iPhone model, option contracts decline in value over time.  Each is valuable for a certain period of time then becomes worthless.  In the case of milk and an iPhone, if you try hard enough you might be able to find someone to buy your [...]

Buying a put or call option is a pretty good deal.  You get to risk a small amount of capital that a stock’s price will go up or down and, if it does, you stand to make a substantial profit by either selling the option or executing it and holding onto the stock as it [...]