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Q: What is a stock option?
A: Options are securities traded on the open market, just like stocks or bonds. Each option contract represents an underlying stock or index. The option's value goes up or down in accordance with the rise and fall of the underlying stock or index. A stock option gives you the right but not obligation to buy or sell the underlying stock at a specific price for a specified period of time. There are two types of stock options: (1) Calls and (2) Puts.
Q: What is a call option?
A: A call option gives the owner the right-not obligation-to buy shares of stock. The value of a call option will rise when the underlying stock or index rises and the call value will lower when the stock or index decreases in value.
Q: What is a put option?
A: A put option gives the owner the right-not obligation-to sell shares of stock. The value of a put option will rise when the underlying stock or index drops in value and the put value will decrease when the stock or index rises.
Q: What is a contract?
A: Options are traded in units called contracts; much like stock is traded in units called shares. One contract represents 100 shares of stock. An option contract contains three features: (1) a certain stock or index that you have the right to buy or sell; (2) the price at which you can buy or sell; (3) and the time frame you have to make the decision to buy or sell the underlying stock or index.
Q: What is the time frame for option trades?
A: Options have a time frame of 1 month to as much as 2 years before the option owner must decide to take action. With our exclusive spread trades, you don't have to worry about buying or selling stock. Your profits should be realized in less than 60 days of investment, with no closing trades.
Q: What are the ways to initiate an options trade?
A: Options are 'bought to open' or 'sold to open'.
Q: What are the ways to close an options trade?
A: If you 'buy to open' an option, then you must 'sell to close'. Conversely, if you 'sell to open' an option, then you must 'buy to close'.
Call Options - Learn Options - Black and Scholes