Hey Investas,

Welcome to the blog! We will be posting educational content around stocks and options to increase knowledge and awareness of the products. Join our community and keep up to date with the latest content by signing up to our waitlist.

To kick off we thought about discussing some of the key terms used when investing in options. If you’ve explored options before, there’s a high chance you have heard the below terms. If you’re new, this is a great starting point!‍

Option - A financial contract which gives the owner the right, but not the obligation, to buy or sell a specific asset at an agreed price, before or on an agreed date

Underlying Asset - Where the value of the option is derived from
e.g. a share in Apple

Underlying Asset Price - The current market price of the Underlying Asset
e.g. the current price of an Apple share is $171.00

Strike Price - The price at which the Underlying Asset can be brought or sold once the contract is Exercised
e.g. $175.00

Exercise - Using the right to buy or sell the Underlying Asset at the Strike Price before or on the Expiration Date

Expiration Date - The final date the contract is valid
e.g. 16th June 2023

Premium - The current market value of the option contract and the amount the buyer pays the seller for the rights of the contract
e.g. $2.67

Breakeven - The price the Underlying Asset must reach at expiration for the contract holder to avoid a loss:

Calls = Strike Price + Premium paid
e.g. $177.67

Puts = Strike Price - Premium paid
e.g. $172.33 

Multiplier - Stock options have a multiplier meaning each contract represents a specific amount of shares
e.g Apple options have a 100x Multiplier, representing 100 shares

$2.67 Premium x 100 Multiplier = $267.00 total Premium for 1 contract. This would give the holder the right but not the obligation to buy or sell 100 shares of the Underlying Asset

Out the money (OTM) - 

Calls - Strike Price is above the Underlying Asset Price
Puts - Strike Price is below the Underlying Asset Price

At the money (ATM) - 

Calls & Puts - Strike Price is equal to the Underlying Asset Price‍

In the money (ITM) -

Calls - Strike Price is below the Underlying Asset price
Puts - Strike Price is above the Underlying Asset price