The 3Dimensional Trading Breakthrough

The 3 Dimensional Trading Breakthrough
Option premium: The price of a particular option contract that is determined by
supply/demand, time value, intrinsic value, interest rates, and volatility.
Total option premium=intrinsic value + time value.
(Premium does not include related brokerage commission fees. The premium is the
maximum amount of potential loss to which the option buyer may be subject.)
Out-of-the-money: An option which holds no intrinsic value. A call is out-ofthe-money
if its strike price is above the current price of the underlying futures
contract. A put is out-of-the-money if its strike price is below the current price of
the underlying contract.
Put option: An option that gives the option buyer the right to sell (go “short”) the
underlying futures contract at the strike price on or before the expiration date. The
put option buyer pays for the option premium, resulting in a limited risk position
with unlimited profit potential. The put option seller has the obligation to go long
from the strike price, if exercised upon, resulting in potentially unlimited risk. The
option seller receives premium as a credit.
Risk: Any potential loss on a trade.
Sell: Used by a trader to offset, or liquidate, a long option or futures contract
previously bought. This will be done at either a profit or loss.
Selling short: Used by a trader to initiate a position going short a futures or an
option contract. Option sellers/writers have the obligation, not the right, to enter a
long/short futures contract position upon option assignment or option expiration.
Speculator: An individual or institution buying or selling futures in anticipation of
a profit when prices go up or down. Speculators do not intend to make or take
delivery of the actual contract.
Spread: The simultaneous buying and selling of at least two different future
contracts, or simultaneous buying and/or selling of at least two different option
strike prices.
Straddle: A position having a long call and a long put, in which both options have
the same expiration date and strike price. This could also be a short call and a
short put.
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