Part 3 Learn Institutional Trading

Key Terminologies in Option Trading

Before diving deeper, let’s understand a few critical terms:

Strike Price: The predetermined price at which the option can be exercised.

Premium: The price you pay to buy the option contract.

Expiry Date: The date on which the option contract ends.

In-the-Money (ITM): When exercising the option is profitable.

For Calls: When market price > strike price.

For Puts: When market price < strike price.

Out-of-the-Money (OTM): When exercising the option is not profitable.

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

Lot Size: Options are traded in predefined quantities called lots.

Underlying Asset: The stock, index, or commodity on which the option is based.

These basics are the building blocks for understanding how profits and losses are calculated.