What is an option contract?

Investing with moomoo joined discussion · Apr 2, 2021 16:53

We are hoping this to be an easy and simple lesson to introduce options to you. By following Options Basics' articles, you should be able to understand options and how to utilize options to either profit or protect your stock.

We are hoping this to be an easy and simple lesson to introduce options to you. By following Options Basics' articles, you should be able to understand options and how to utilize options to either profit or protect your stock.

An option contract is an agreement between two parties, giving the holder the right to buy or the right to sell a fixed quantity of an underlying security at a specific price(the strike price) for a specific period of time.

There are two types of options: calls and puts. options can be traded on several kinds of underlying securities. Some of the most common ones are stocks, indexes, or ETFs (Exchange Traded Funds). For stock options, a single contract always covers 100 shares of the underlying stock.

So how can we understand an option contract? An option contract mainly consists of 5 factors: the underlying stock, option type, expiration date, strike price and option price(Option premium).
Moomoo supports options trading, and you can find the option contracts you want and pay attention to all factors of them.

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Here is an example above. The example contract is a call option, which priced at $1.55 at that time and giving the holder right to buy $Apple (AAPL.US)$ stocks at $130 before April 30, 2021 (This is the rule of American Option, and European Option limits execution to its expiration date).

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If there is anything that you didn't understand in today's Options Basics article, simply leave a comment below and we will try to explain more to you!