# Selling options for profits
**Definitions**\
An option gives you (the buyer) the option but not the obligation to buy/sell a specific\
“underlying” at a specific price (strike price) on or before a specific time (expiration date)
\
**Expiration Date**\
Occurs the Saturday after the third Friday of every month
**Underlying**\
Underlying can refer to a Stock or an Index
\
**Strike Price**\
Strike price internals are standardized\
Strike priced between 0-25; 2 ½ strike intervals\
Strike priced between 25-200; 5 strike intervals\
Strike priced above 200; 10 strike intervals
Front **Month**\
The month to expire next for a specific stock.\
Most stocks with options will have front month, the month after front month and 3 month\
separated expirations afterwards
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**Contracts**\
Prices for options are quoted on a per contract basis, each contract is equivalent to 100 shares so you have to multiply by 100 to know the cost of that option
**Open Interest**\
The amount of outstanding contracts out in the market for a specific stock\
option
\
**Selling Short**\
Borrowing shares from your broker expecting them to go lower so that you\
can “buy to cover” them at a lower price and make a profit
\
**Buy to Open/Sell to Close**\
The conventional way to think about the stock market, you buy to open x# of\
shares and sell the shares to close the transaction
**Sell to Open/Buy to Close**\
You can also Sell to Open in the case of stock by doing a short selling and\
buy to close, buy to cover, later on. When dealing with Options you can also\
sell to open and buy to close
**Calls** give you the right to **sell** at a specific price
**Puts** give you the right to **buy** a specific price
**Symbol nomenclature**\
5 IBM Apr 100 Calls or 5 IBM1016D100\
(10 = year, 19 = day, D designates Call and april, 100 = strike)
\
If you buy the above you have the option to buy at any time before the third Friday in\
Apr 500 Shares of IBM at $100
**In the money, at the money and out of the money**\
In the previous IBM example the option was In the money since it had intrinsic value, i.e. your strike price was less than the current stock price on a call option and vice\
versa for a put option
When an option is out of the money it has only Extrinsic Value
\
Since very rarely a stock is exactly at a strike price the term quasi-at the money is used, and is defined as the strike price closest to the current stock price
**The Greeks** explain the behavior of the stock option when compared to the underlying stock
**Delta** can be seen as
* The amount the option premium will fluctuate for $1 change in the stock or
* The probability that the stock will end up at that strike price
* Delta will be negative on Puts because a decrease in the underlying stock price will increase the value of the put
**Theta**
* The change of an option’s price with the passing of one day (all else being equal)
\
**Vega**
* The change of an option’s price with the change of the underlying’s volatility (all else being equal)
Examples
**Order types**
**By duration (equities)**
* Day: Good only for the Day you place the order
* Day+: Good for regular trading hours (9:30 AM to 4 PM EST) plus after hours that day
* After hours trading comprises of
* 8 AM – 9:30 AM EST
* 4 PM – 8 PM EST
* GTC: Good till cancel, most platforms will keep these orders 3\
months active
* GTC+: Good till cancel for regular and after hours
\
**Stock Option**s trade during regular trading hours only
**By Execution**
* Market\
Used to enter an order that will get executed almost immediately since it will\
be placed at current market price
* Stop Loss\
A market order triggered by a predetermined stop price
* Limit\
When selling it will sell at or above a predetermined limit price, and when\
buying it will buy at or below a predetermined limit price
* Stop Limit\
A combination of a stop order and a limit order, it will get triggered when the stop price is reached and execute at limit price or better
* OCO (Order Cancels Order)\
When any of the orders gets filled it will cancel the rest
Tip: Use limit orders when applicable and as much as\
possible to control your entries and exits