OPTIONS SPEAK

Definitions


Call Option:

A contract between a buyer and a seller that gives the buyer the right (but not the obligation) to purchase the underlying on or before the expiration date.


Put Option:
 
A contract between a buyer and a seller that gives the buyer the right (but not the obligation) to sell the underlying on or before the expiration date.

  
Covered Calls:

A Covered Call or Covered Write is a combination strategy in which the trader buys Stock and then sells a short-term OTM Call Option.  For each 100 shares of Stock that is purchased, the trader sells 1 Contract.


 LEAPS Covered Write:

The LEAPS Covered Write is a form of a Calendar or Diagonal Spread Trade.  A Deep In-The-Money (ITM) LEAPS is purchased as a substitute for the underlying Stock and then, like a regular Covered Call, a short-term Out-of-The-Money (OTM)  is sold.  This enables the trader to gain monthly cash flow with significantly less capital used to purchase the underlying.