Stock Options For Dummies
The book Stock Options For Dummies will help you understand put and call options. Although it's not bad, honestly, you don't need it. Everything you need is right here in this free tutorial. Read the first few pages and you should get a good understanding of how stock options work. It's so easy even dummies can do it!
As a starter, here are some put and call option basics:
One option controls one hundred shares of stock.
However, options are normally quoted on a per-share basis so when you see an option price for $1.80 that means it's $180 per option contract (because each contract controls 100 shares).
If you had 100 shares of stock, you could sell one call option against it and receive $180.
If you had 500 shares of stock, you could sell five call options against it (not 500 call options) and receive 5 x $180, or $900.
Likewise, if you own fewer than 100 shares of stock you can't create a covered call position from it.
Options (both types, calls and puts) have three main attributes to identify them:
- the underlying stock
- the expiration date
- the strike (or exercise) price
Monthly options expire on the Saturday after the 3rd Friday of their expiration month. That's just the way the CBOE set it up. The last day they are available for trading is the day before they expire (i.e. they stop trading on the 3rd Friday of their expiration month). By the way, books like Stock Options For Dummies aren't bad if you want something to read when you're not online...
Monthly options don't expire on the last day of the month. Instead, they expire on the Saturday after the 3rd Friday of their expiration month. No reason. Chicago Board Options Exchange (CBOE) just designed it that way. The last day options trade is the day before they expire (i.e. they stop trading on the 3rd Friday of the month). By the way, the book Stock Options For Dummies isn't bad if you want something to read when you're offline...
Strike prices are available in $5 increments, or for some lower priced stocks they are available in $2.50 increments, or in $10 increments for high priced stocks. Heavily traded stocks under $100 usually have strikes in $1 increments. (You don't need to remember this; we'll show you all of the available choices in our tables; that's just the kind of top-notch firm we are.)
There are over hundreds of thousands of call options available with different combinations of stock, strike price, and expiration month, but for some stocks, some months, and some strike prices, there are no options available. The CBOE decides which options are available.
Another way to have stock options for dummies explained (when you're done with this tutorial) is to read through our covered call blog.