## Definition of Option Terms | |

Objectives of trading options, options pricing, disparities in pricing, and complex option strategies will covered in the chapters that follow. There are a lot of terms and concepts introduced, and we need to define a few before moving further.
In the above example, AAPL is the of $50. The strike
price is
$51. The underlying price ($51) is more than the strike price ($50) by
$1, therefore, the option must be worth at least $1. The option is
underlying stock price by $1. The amount the option is in the
money ($1) is the in the money. The rights of the
option holder expire on the intrinsic value. The length
of time between the purchase of the option and the expiration of the
option is the expiration date.
term
An option is a is the price of an option and is quoted on a
per-share basis. An option contract quoted at $1.75 will cost $175,
plus commissions. The minimum option purchase is 1 contract. Contracts
listed by the exchange typically cover 100 shares of the underlying
stock, but that is subject to change as a result of stock splits,
mergers, spin-offs, large dividends, or other corporate actions.
premiumThe objectives of trading options are discussed in Chapter 2. |