What is option “premium”? The premium is the price at which an option trades, and is paid by the buyer to the writer (seller) of the contract. The premium paid by the buyer is non-refundable payment for the rights inherent in the long contract. The writer (seller) of an option contract keeps the premium received, ...…
In-the-Money (ITM), Out-of-the-Money (OTM), and At-the-Money (ATM) are three terms used to describe the relationship between an option’s strike price and the current price of the underlying stock. A call option is considered to be In-the-Money (ITM) when the stock is trading higher than the option’s strike price, Out-of-the-Money (OTM) when it is trading for ...…
When do options expire? Expiration day for equity and index options is the Saturday immediately following the third Friday of the expiration month. When is the last day to trade or exercise an equity option? Although equity options literally expire on the third Saturday of the expiration month, a day reserved for brokerage firms and ...…
How do you nullify the obligations of a short call or put? Any investor with an open short position in a call or put option may nullify the obligations inherent in that short (or written) contract by making an offsetting closing purchase transaction of a similar option (same series) in the marketplace. This transaction must ...…
What is “automatic exercise” of an option? The Options Clearing Corporation has provisions for the automatic exercise of certain in-the-money options at expiration, a procedure also referred to as “exercise by exception.” Generally, OCC will automatically exercise any expiring equity call or put in a customer account that is $0.05 or more in-the-money, and an ...…
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