PCR Trading Strategies

Basics of Options

Options come in two primary types:

Call Options: A call option gives the holder the right to buy the underlying asset at a specific price (known as the strike price) before or on the expiration date. Traders purchase calls if they anticipate the asset's price will rise.

Put Options: A put option gives the holder the right to sell the underlying asset at the strike price before or on expiration. Traders buy puts when they expect the asset's price to fall.

Key terms every options trader must understand:

Underlying Asset: The security or instrument upon which the option derives its value.

Strike Price: The price at which the option holder can buy or sell the underlying asset.

Premium: The price paid to purchase the option.

Expiration Date: The last date the option can be exercised.

In-the-Money (ITM): A call option is ITM if the underlying asset price is above the strike price; a put is ITM if the underlying price is below the strike price.

Out-of-the-Money (OTM): A call option is OTM if the underlying asset is below the strike price; a put is OTM if above.

At-the-Money (ATM): When the underlying price equals the strike price.