Selling Stock Options
Selling stock options is serious business. After all, you can make money when you sell and you must know when to sell - that is, be able to identify the best time.
Basically, stock trading in options signifies buying and selling the options. In Option Trading, the holder of an option has the right but not necessarily the obligation to exercise that option within the time frame.
It is also necessary to be familiar with the trade terms.
Option writer or option seller indicates the person who sells a stock option to another person through the exchange.
Call Option refers to an agreement that allows an investor to buy a stock at an agreed price anytime during a set period. The buyer of a call option pays the seller for his right.
Strike Price means the price at which the call option buyer buys stock. Multiple strike prices are generally available on popular stocks.
Expiration Date is the last date on which the option is exercisable.
Premium is the price paid for the option and it goes from the buyer to the seller immediately at the time of the sale.
Out- of-the-Money Call Option is an option that allows the buyer to buy a stock at a price that is higher than its current market price.
In-the-Money Call Option allows the purchaser, at the time of the purchase, to buy the stock for a price that is lower than the price at which the stock could be bought in the open market.
Option Chain refers to a list of options available for a particular stock indicating their premium prices, strike prices, expiration dates, etc.
Option Contracts. Options are all traded in groups of 100 stocks, generally known as Contracts where one cannot write options for uneven units - only for 100 share blocks. Once options are sold on one's stock, the person cannot sell the stock itself until the option expires since the option holder has a claim on those shares.
There are two kinds of stock options: Statutory and Non-statutory. Incentive stock options are statutory options as they are specified in the Internal Revenue Code and are subject to several qualification exigencies. Options that do not meet such exigencies are Non-statutory Options.
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