Dopex-Essentials

So, what exactly are options?

You may be an option buyer because:

• You want to limit your risk while still having large profit potential
• You want to take a position that cannot be stop hunted or liquidated
• You are predicting a large price movement or an increase in implied volatility

You may be an option seller because:

• You want to collect the premium for the option
• Time decay works in your favor, if there is no price movement, you will make a profit
• You are predicting small price movements or a decrease in implied volatility
• You can profit from the market’s tendency to overestimate future volatility

Remember these terms:

In the money (ITM):
• For a call — this term is used when the strike price is lower than the current price of the underlying asset.
• For a put — this term is used when the strike is higher than the current price.
At the money (ATM):
• For both a call and a put — this term is used when the strike is equal to the current price.
Out of the money (OTM):
• For a call — this term is used when the strike price is higher than the current price of the underlying asset.
• For a put — this term is used when the strike is lower than the current price.

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