Stock Option Contacts

     Stock option contracts are a lot different than trading stocks.  When you buy or sell stock, you have no further obligation to buy or sell.  You can remain in your position indefinitely.  However, stock options are limited-time contracts only.  Moreover, while all stock for one company is the same (unless it's preferred stock), there are usually hundreds of different stock options contracts all tied to one underlying company.  Here are some of the option contracts basics.

Strike Price - The stock price at which the option contact gives its owner the right to buy/sell the stock.

Expiration Date - The date on which an option contract expires.  Options expire on the 3rd Friday of every month, so an option that expires in January '05 will expire the third Friday of that month.

Exercising an Option - Only a very small percentage of option contracts are actually delivered.  Most open contracts and closed by making an offsetting trade.  For example, if you sell a call option, rather than deliver stock at expiration you would usually buy the option back prior to expiration (see below for info about opening and closing positions).

Buying an Option - Also referred to as "going long."

Selling an Option - Also referred to as "going short" or "writing" an option.

Opening and Closing - When you buy or sell an option, you are entering the option contract.  When you initially buy or sell, you are opening your position.  To sell or buy the contract back, you are closing your position.  A vast majority