Introduction

What is an Option?

An option is a standardized contract providing for the right – but not the obligation – to buy or sell an underlying financial instrument. For the Options Hunter this can be an underlying stock, exchange traded fund (ETF), or an index. The contract controls 100 shares, and is good until a defined expiration date. The price at which these contracts can be bought or sold also is known as the strike price.

There are two types of options: calls and puts. You can buy or sell either type of contract. If you buy an option you are the holder of the contract and considered to be “long,” while if you sell an option you are the “writer” of the contract and considered to be “short.” The Options Hunter only buys calls and puts, we never write options.

The buyer of a call has the right to buy the underlying security (e.g. 100 shares of Yahoo) at the strike price on or before the expiration date. The seller of a call has the obligation to sell the shares, if asked.

The buyer of a put has the right to sell the underlying security (e.g. 100 shares of Google) at the strike price on or before the expiration date. The seller of a put has the obligation to buy the shares, if asked.

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