Although there are hundreds of terms that are used in the financial language, beginners have to understand first the most important and commonly used words.
Option is the right of the buyer to either buy or sell the underlying asset at a fixed price and a fixed date. At the end of the contract, the owner can exercise to either buy or sell the option at the strike price. The owner has the right to pursue the contract but he or she is not obligated to do so.
Call option gives the owner the right to buy the underlying asset.
Put Option gives the owner the right to sell the underlying asset.
Exercise is the action where the owner can choose to buy (if call option) or sell (if put option) the underlying asset or, to ignore the contract. If the owner chooses to pursue the contract, he must send an exercise notice to the seller.
Expiration is the date where the contract ends. After the expiration and the owner does not exercise his or her rights, the contract is terminated.
In-the-money is an option with an intrinsic value. The call option is in-the-money if the underlying asset is higher than the strike price. The put option is...
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