SIE Options Terms and Formulas
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24 Terms
Long Call
You are a buyer with the right to Buy. You’re bullish. Buying (long) the power to buy (call).
Breakeven = strike price + premium
Max gain = unlimited
Max loss = premium paid
Short Call
You are a seller/writer. You have the obligation to sell. (Selling the buying power to the buyer) You are bearish. The buyer gets the call. Selling (short) the power to buy (call).
Breakeven = Strike Price + premium
Maximum gain = premium received
Max loss = unlimited
Long Put
You are the Buyer with the right to SELL the stock. You’re bearish. YOU’RE BUYING INSURANCE. Buying (long) the option to sell (put).
Breakeven = Strike Price - Premium
Max Gain = strike price - Premium
Max loss = premium paid
Short Put
You are the Seller/writer. You have the obligation to buy. (Selling the selling power to the buyer). YOU’RE SELLING INSURANCE. You’re bullish. Selling the put to the buyer. Selling them the power to sell.
Breakeven = Strike Price - Premium
Max gain = premium received
Max loss = strike price - premium
Long
You have a Right. You paid the premium. Max loss is premium paid.
Put
You have an obligation. You collected the premium. Breakeven is strike price - premium
Amount of Shares in 1 Contract
100 shares
At the Money
Market Price = Strike Price
In the money
Call: Market Price > strike price
Put: Market price < strike price
Out of the money
Call: Market price < strike price
Put: Market price > strike price
Call UP
Strike + Premium = Breakeven
Put Down
Strike - Premium = Breakeven
When You Own Stock AND Option
Cost of Stock (per share) + Premium = Breakeven
Selling Covered Calls
Generate income from existing stock you own
When Options Trades Settle
T+1
Straddle
Buying or Selling both a call and a put on the same stock with the same strike price and expiration
Call
The right to buy. You are calling it toward you. Because you want it to go up.
Put
The right to sell. You are putting it away from you. Because you want the price to go down.
EPIC
Exporters buy puts
Importers buy calls
Time Value Formula
Premium - Intrinsic Value
Intrinsic Value Formula for Call
Market Price - Strike Price
Intrinsic Value for Put
Strike Price - Market Price
Current Yield Formula
Annual Interest / Current Market Price
Uncovered/Naked Call
Selling call option in a stock that you do not own