We realize that we could not cover all the ground we wanted to in our FAQ section and so this serves as a supplement to aid in shortening the
learning curve for those who wish to get on the fast track towards successfully trading options.
- Option
A contract to buy or sell a specific financial product officially known as the option's underlying instrument or underlying interest.
- Strike
The price at which a specific derivative contract can be exercised.
- Expiration
The date on which an option and the right to exercise it cease to exist.
- Credit Spread
A spread strategy that increases the account's cash balance when it is established.
- Debit Spread
A spread strategy that decreases the account's cash balance when it is established.
- Iron Condor
An advanced options strategy that involves buying and holding four different options with different strike prices.
- Call Option
An option contract that gives the owner the right to buy the underlying security at a specified price (Its strike price).
- Put Option
An option contract that gives the owner the right to sell the underlying stock at a specified price (Its strike price).
- Credit
Money received in an account either from a deposit or a transaction that results in increasing the account's cash balance.
- Debit
Money paid out from an account either from a withdrawal or a transaction that results in decreasing the cash balance.
- In-The-Money
For a CALL Option, it is when an option's strike price is less than that of the price of the underlying security. For a PUT
Option, it is when an Option's strike price is more than that of the underlying security.
- At-The-Money
When an option's strike price is identical to the price of the underlying security
- Out-Of-The-Money
For a CALL Option, it is when an option's strike price is more than that of the price of the underlying security. For a PUT
Option, it is when an Option's strike price is less than that of the underlying security.
- Margin Requirement
This is somewhat confusing to figure out being new to Options Trading. Simply put, Margin Requirement is trading capital held aside
by the broker specifically as collateral for an opened trade and is inaccessible to the account owner until the trade for which it
was held has been either closed down or expired.
For an example showing exactly how Margin Requirements are calculated, click HERE
to be directed over to our Return Calculations Page.
