Option Strategies - A Quick Guide (2010).pdf

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Options Strategies
quick
guide
OIC is providing this publication for
informational purposes only. No statement
in this publication is to be construed as
furnishing investment advice or being a
recommendation, solicitation or offer to
buy or sell any option or any other security.
Options involve risk and are not suitable
for all investors. OIC makes no warranties,
expressed or implied, regarding the
completeness of the information in this
publication, nor does OIC warrant the
suitability of this information for any
particular purpose. Prior to buying or selling
an option, you must receive a copy of
Characteristics and Risks of Standardized
Options. Copies of this document may be
obtained from your broker, from any
exchange on which options are traded,
by calling 1-888-OPTIONS (678-4667), or
by visiting www.OptionsEducation.org.
ABOUT OIC
The Options Industry Council (OIC) was formed in 1992 as a unified
industry effort to educate individual investors about the benefits and
risks of exchange-traded options. OIC conducts hundreds of seminars,
distributes educational brochures, maintains a website and offers live
help from options professionals. The goal of OIC, comprised of the U.S.
options exchanges and OCC, is to increase the awareness, knowledge and
responsible use of exchange-listed equity options among a global
audience of investors—including individuals, financial advisors and
institutional managers—by providing independent, unbiased education
and practical knowledge.
1-888-OPTIONS (678-4667)
www.OptionsEducation.org
•
HOW TO USE THIS BOOK
•
profit
•
strike
price
BEP
+
•
stock
price
•
-
loss
•
Each strategy has an
accompanying graph showing
profit and loss at expiration.
The vertical axis shows the
profit/loss scale.
When the strategy line is below
the horizontal axis, it assumes
you paid for the position or
had a loss. When it is above
the horizontal axis, it assumes
you received a credit for the
position or had a profit.
The dotted line indicates the
strike price.
The intersection of the strategy
line and the horizontal axis
is the break-even point (BEP)
not including transaction
costs, commissions, or margin
(borrowing) costs.
These graphs are not drawn
to any specific scale and are
meant only for illustrative
and educational purposes.
The risks/rewards described are
generalizations and may be
lesser or greater than indicated.
TERMS AND DEFINITIONS
Break-Even Point (BEP):
The stock price(s) at which an option
strategy results in neither a profit nor loss.
Call:
An option contract that gives the holder the right to buy
the underlying security at a specified price for a certain, fixed
period of time.
In-the-money:
A call option is in-the-money if the strike price is
less than the market price of the underlying security. A put option
is in-the-money if the strike price is greater than the market
price of the underlying security.
Long position:
A position wherein an investor is a net holder in a
particular options series.
Out-of-the-money:
A call option is out-of-the-money if the strike
price is greater than the market price of the underlying security.
A put option is out-of-the-money if the strike price is less than
the market price of the underlying security.
Premium:
The price a put or call buyer must pay to a put or call
seller (writer) for an option contract. Market supply and demand
forces determine the premium.

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