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THE OPTION CHAIN EXPLAINED
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Options Chain Explained:

Strike Price: Price at which the underlying security can be bought or sold

  • When selling a put option - you agree to purchase shares at a specific strike price

  • When buying a put option - you have the right to sell shares at a specific strike price

  • When selling a call option - you agree to sell shares at a specific strike price

  • When buying a call option - you have the right to buy shares at a specific price 

Liquidity: The amount of buyers and sellers in the options market

  • This is very important in order to readily buy and sell contracts with efficient pricing 

  • Tight bid/ask spread pricing enables efficient pricing in options 

Delta: Proxy for probability of success at expiration (options delta)

  • This is an absolute number (1.0 less delta) thus if delta is -0.20 then 1.0 - (-0.20) = 0.80

  • 0.80 = 80% chance the option expires worthless at expiration

  • Alternatively, a 20% chance the option falls in-the-money at expiration

In-The-Money: Strike prices at which options can be exercised

  • If a put is in-the-money then the option buyer can assign shares to the option seller

  • If a call is in-the-money then the option buyer can buy shares from the option seller

Out-Of-The-Money: Strike prices at which options cannot be exercised 

  • The option buyer cannot assign shares nor can they buy shares from the option seller 

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Stock Options Dad LLC

A Registered Investment Adviser (RIA) firm

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