Part 2 Support and Reistance

Key Terminology in Option Trading

Before diving deeper, it’s important to understand the essential terms used in option trading:

Strike Price: The fixed price at which the holder can buy (call) or sell (put) the underlying asset.

Premium: The price paid by the option buyer to the seller for the contract.

Expiration Date: The date on which the option contract expires. After this date, the option becomes worthless if not exercised.

In-the-Money (ITM): A call option is ITM when the underlying price is above the strike price; a put option is ITM when the underlying price is below the strike price.

Out-of-the-Money (OTM): A call option is OTM when the underlying price is below the strike price; a put option is OTM when the underlying price is above the strike price.

At-the-Money (ATM): When the underlying asset price equals the strike price.

Underlying Asset: The financial instrument (stock, index, currency, or commodity) on which the option is based.