Options 101
Basics of Options:
They can be used for risk management for your positions, income, investing, trading, and more. They are tools to generate semi passive income and more.
CALLS:
1. If you are the BUYER then you are BULLISH and have the right to buy stock. You want stock price to rise.
2. If you are SELLER then you are BEARISH and have the obligation to sell stock. You want stock price to fall.
PUTS:
1. If you are the BUYER then you are BEARISH and have the right to sell stock. You want stock price to fall.
2. If you are the SELLER then you are BULLISH and have the obligation to buy stock. You want stock price to rise.
As a BUYER, you are:
Owner, are LONG, and have RIGHTS.
Your objective is maximum speculative profit and you enter the contract with an opening purchase. You want to EXERCISE the option. You want it to expire ITM (in the money).
As a SELLER, you are:
Writer, are SHORT, and have OBLIGATIONS.
Your objective is premium income and you enter the contract with an opening sale. You want the option to EXPIRE worthless so you keep the premium. You want it to expire OTM (out of the money).
When are OPTIONS In The Money?
CALLS are ITM when Stock Price > Strike Price
PUTS are ITM when Stock Price < Strike Price
When are OPTIONS Out of The Money?
CALLS are OTM when Stock Price < Strike Price
PUTS are OTM when Stock Price > Strike Price
CALLS and PUTS are BOTH At The Money (ATM) when Stock Price = Strike Price
