Option Basics

How to Read a TRADE


XYZ AUGUST 70 CALL AT $3.10

where XYZ is the name of the stock
August is the expiration date
70 is the strike price
Call is the option type
$3.10 is the premium

Buyer – LONG – buy to open – debit

Buyer – LONG – sell to close – credit

Seller – SHORT – sell to open – credit

Seller – SHORT – buy to close – debit

How to Read an Option Pricing Diagram

APR 17 (10) 100 (weekly)

Where option expires on the 1st Friday of April 2017
10 days left
“100” represents the multiplier. i.e 1 option rep 100 underlying shares

Weekly option. If NO indication, means monthly option

* Monthly option expires on the 3rd Friday of the month

Option Pricing and the Greeks

Pricing = IV + TVM 

where IV is impacted by SPOT and STRIKE price
where Time Value of Money is impacted by – Time Value of Money – further from expiration, more valuable the option

– Higher Volatility – higher option price

– Interest Rate – Not much impact for options that have > 60 days to expiration