What is strike price options? Well...Options use strike prices. We all know that. But what are strike prices and how exactly do they work?
Down below you'll see a trading chart with STRIKE PRICES circled in green. All options are correlated to strike prices. These are the prices at which you either have rights or obligations depending on whether you bought or sold the option.
Looking at the green circle above, you'll see the first number there is 1. The numbers go all the way down to 13 (which you can't really see). What is strike price options? These are strike price options. Down below is another chart to help explain it further.
Up above you'll see I circled the words CALLS, and PUTS in blue. These are what you use depending on your bias of the stock. Bought calls= Your Bias is bullish. Bought Puts=Your Bias is bearish. From there you choose your strike to explain what rights you have. The word ASK is in Green, it means= BUY. The word BID in yellow means= SELL. Ask=Buy. Bid=Sell. Please understand that because this will determine if you have rights or obligations based on the strike price that you chose.
And the strike price is where your rights lay.
* If you buy a call at the $1 strike price, you have the right to buy 100 shares of AAL at $1/share.
* If you buy a put at the $1 strike price, you have the right to sell 100 shares of AAL for $1/share.
See how the strike price works with the word ASK=BUY? You have rights when you buy. No obligations.
* If you sold (bid) a call at the $1 strike , you are OBLIGATED to sell your 100 shares at the $1 strike if the price of the stock went above the $1 price range by expiration.
That means...even if the shares are worth $10/share, you PROMISED to sell it at $1 and are obligated to do so (unless you close the trade out). They pay you for this promise though, but that is in another lesson.
* If you sold (bid) a put at the $1 strike price, you are OBLIGATED to buy 100 shares of AAL if the stock falls below the $1 price range by expiration.
Example: You sold a put at $1 promising to buy 100shares at $1/share. By expiration , the stock was only worth $0.75. You are still obligated to buy 100 shares at $1 each.
Hope that makes sense. A new video will be coming soon to this page to make things much more easier to understand! Til then, don't forget to join out MEMBERS ONLY group!
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