Q: What is Delta
A: There’s two ways of looking at what Delta is.
The New Way: Delta is considered the probability that a stock will be in the money at the time the option expires. In other words, if your option has a Delta of 30, then there’s a 30% chance that the stock will be in the money and a 70% chance that the stock will be out of the money at the time your option expires. As always, unexpected news (good or bad) can wildly swing stock prices.
The Old Way: Delta told us how much the option price would move for every dollar that the stock moves. So if you have an option with a Delta of 30 and the stock goes up or down $1.00, then the price of the option goes up or down $0.30.
Q: What does In the Money, At the Money, and Out of The Money mean?
A: Those terms simply mean how close your option price matches the stock price at any given time. The concept isn’t difficult but explaining it is a bit more difficult because it depends on if you’re talking about a call option or a put option.
For a call option:
In the Money (ITM) means that your call option’s strike price is less than the stock’s current price.
At the Money (ATM) means that your call option’s strike price is around the same price as the stock’s current price.
Out of the Money (OTM) means that your call option’s strike price is higher than stock’s current price.
For a put option:
In the Money (ITM) means that your put option’s strike price is higher than stock’s current price.
At the Money (ATM) means that your put option’s strike price is around the same price as the stock’s current price.
Out of the Money (OTM) means that your put option’s strike price is less than the stock’s current price.
Q: What is a premium?
A: Premium is money you get for selling an option.
Q: What is a Cash Secured Put?
A: A cash secured put (CSP) simply means that you have enough money in your account to cover the purchase price of 100 shares of the stock for each put contract. For example, if you sell an $80 put, it means you have $8,000 to cover the cost ($80 * 100) if you’re assigned shares. If you sell a $20 put then you need to have $2,000, etc. If you sell two $20 puts then you would need $4,000 ($20 * 200).
Q: What is a Covered Call?
A: A covered call (CC) simply means that you have 100 shares of the stock for each call you sell. So if you sell one call, then you already have 100 shares, if you sell two calls then you have 200 shares, etc.
Q: What is a long call or put?
A: a long call or put means you bought the option rather than sold the option.
Q: What is a short call or put?
A: a short call or put means you sold the option rather than bought it.
Q: What is DTE?
A: DTE is Days To Expiration. When you buy or sell an option, it has an expiration date. If nothing else happens, after that date, the option expires worthless. So 14 DTE means you have 14 days the option has some value, and a 45 DTE means you have 45 days that the option has some value.
Q: What is an ex-dividend date?
A: The ex-dividend date is the cut-off for getting paid dividends. If you buy the stock before the ex-dividend date, then you will get paid dividends. If you buy the stock on, or after, the ex-dividend date, then you don’t get paid dividends.
Q: What is an earnings date?
A: The earnings date is the date that the company announces how it did. A favorable report usually increases the price for a bit and bad or neutral news can drop the price for a bit.
Q: What is Dollar Cost Averaging?
A: Dollar Cost Averaging is simply the total amount on average that you paid for something when you bought it at different times. So if you bought 100 shares of stock for $300.00 and then bought 100 more shares of the same stock at $200.00, then your actual cost for 200 shares is $250.00 [($300 + $200) / 2 = 250]. If you bought 100 shares for $300 and 100 shares for $200 and 100 shares for $100 then your actual cost for 300 shares is $300 [($300 + $200 + $100) = $300]