It can be challenging to learn about the stock market and stock market terms. There’s so much to wrap around your head. Beginning with learning the basic terms and phrases is the best way to get started. The financial news will make more sense once you’ve got your head around the language, you’ll be able to talk intelligently about stocks, and you’re off on your path to trading success.
Here are the most common stock market terms every trader needs to know.
1. Strike price
A strike price is the price that is agreed by both buyer and seller of the option to deal with. That means if the strike price of the call option is 35, the seller of this option obligates to sell a security at this price to the buyer of this option even though the market price of the security is higher than 35 if the buyer exercises the option. Buyers of this option can buy a security with a price that is lower than the market price. If the current market price is $39, the buyer will earn $4. If the security price is lower than the strike price, the buyer will hold the option and leave the option to expire worthlessly.
For the option strike price, the buyer of the option has the right to sell the security at the strike price to the seller of the option. That means if the put option strike price is 30, the seller of this option obligates to buy the security at this price from the buyer if he or she exercises the option even though the market price is lower than this price. If the market is $25, the option buyer will earn $5. It looks like a lot of transactions have been involved; but actually, the seller of the option will not buy a security and sell it to the buyer. The broker firm will do all the transactions but the extra money that has been used to buy the security has to be paid by the seller. This means if the seller loses $4, the buyer will earn $4.