Basic Module 2 – Options Basics

Open a virtual trading account to practice what you pick up in each module

Introduction / Learning Outcomes:

“Options equal limited control, for a limited price.” Join us for our second series of options basics videos. This series dives much more deeply into what an option is, who uses options and whether or not you can benefit from learning more about them. Specifically, you shall learn:

1. Understand how stocks are the basis for options.
2. Describe what options are.
3. Describe who uses options.
4. Understand what the strike price is.
5. Understand why options are some much more inexpensive than equities.
6. Why sellers of options have more risk than buyers of options.
7. Break-even points.
8. How to calculate real profit from an option.
9. Explain the difference between in-the-money, at-the-money and out-of-the-money.
10. Describe what intrinsic value is.

Recommended Exercises:

1. Look at an option chain.
2. Determine what the strike price and expiration of an option is on an options chain.
3. Go to the Options Clearing Corporation website.
4. Read through the Characteristics and Risks of Standardized Options.
5. Explain how an option has a limited life.
6. Calculate the break-even of a long call option on the ETF SPY.
7. Describe why longer-dated options are more expensive than shorter-dated options.
8. Find a broker’s policy on exercising options.
9. Demonstrate how to profit from exercising a long call.
10. Find an option which is in-the-money, out-of-the-money and at-the-money.
11. Demonstrate how to profit from the increase in value of an option.
12. Discuss what intrinsic value of an option is.