Strike price
The strike is the price at which the option holder can buy (call) or sell (put) the stock. Exchanges list many strikes above and below the current price.
In, at and out of the money
- Call: in the money when the stock is above the strike. Out of the money when below.
- Put: in the money when the stock is below the strike. Out of the money when above.
- At the money: the stock is at or very near the strike.
Intrinsic and time value
Intrinsic value is how far an option is in the money. Everything else in the premium is time value, the market's price for the chance of more movement before expiration. Time value shrinks every day and falls fastest near expiration.
Expiration cycles
- Monthly options expire on the third Friday of the month.
- Many popular stocks and ETFs also have weekly options, and some have daily expirations.
- Longer-dated options (LEAPS) go out a year or more.
- Standard US equity options are American style, which means they can be exercised any time before expiration.
Picking a time frame
Shorter expiration is cheaper but needs the move sooner and decays faster. Longer expiration costs more but gives the idea time. Whatever you pick, the option can still expire worthless.
Key point. Check the expiration date on every contract before you buy it.
Education only, not investment advice. Trading involves real risk of loss, including loss of everything you put in. See the full disclaimer.