THE OPTION CHAIN EXPLAINED

Options Chain Explained:

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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 is 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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Noah Kiedrowski 
Founder and Managing Member

Stock Options Dad LLC

A Registered Investment Adviser (RIA) firm