Options Education

OIC104C: Language of Options

Course Objective:

To introduce you to the world of equity options at the ground level, using every day language that’s easy to understand in a learn-by-example style.

Who Should Take This Course:

Targeted to individuals who have no knowledge of or familiarity with options.

Prerequisite:

Take MyPath Assessment

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Course Description:

This course will provide you the basic building blocks you’ll need for a solid foundation on which to build your knowledge of equity options: basic option terminology, or the “language of options.” Along with a clear definition of each term you’ll find a concise and simplified explanation of underlying concept(s) when appropriate. To ease you through the learning process the class is presented in a series of short lessons, each building logically on the one before, in a question and answer format.

Course Lessons:

Lesson 1 – Equity Options as Contracts

Equity options, like some other financial instruments, are introduced and defined as contracts that trade on exchanges like stock. The similarities and differences between equity options and stock are discussed.

Lesson 2 – What Is an Equity Option?

Like contracts of any kind, the two types of options, calls and puts, are reintroduced as contracts but with standardized terms. Put the terms together and you'll see how specific equity options are identified and referred to.

Lesson 3 – Equity Calls and Puts

Moving forward on the topic of equity call and put contracts, you’ll find more detailed definitions of both along with specific examples. You'll learn that an option "holder" buys option contracts and obtains rights, and that an option “writer” sells contracts and assumes obligations, to purchase or sell shares of the underlying stock. The very commonly used terms "long" and "short" will be introduced.

Lesson 4 – Equity Option Premium

The cash you'll pay to buy an option contract in the marketplace, and/or the cash you’ll receive after selling one, is called the "premium." You'll learn how this cash amount is calculated, as well as the difference between a "debit" vs. a "credit" option transaction.

Lesson 5 – Exercise and Assignment

The option-specific terms "exercise" and "assignment" are defined, and the consequences of these processes are illustrated with specific examples. You'll learn the simple difference between American-style and European-style options. The crucial role The Options Clearing Corporation (OCC) plays in the options industry is also introduced.

Lesson 6 – Option Expiration

Like other forms of contracts, equity options expire. You'll learn the standardized method to determine an equity option’s actual expiration date as well as the last day the option may be bought or sold on an exchange. Equity LEAPS, a term for equity options with long-term expirations dates, are briefly introduced.

Lesson Resources:

Podcasts

OIC102P: Introduction to Financial Markets and Option Basics

OIC103P: An Exploration of Basic Options Terminology

Webcasts

OIC101W: The Options Basics Webcast

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