I am long fascinated with stock investment and with options trading as well. While stock investment is a very complex area it still feels easier to understand than options contracts. In the next few paragraphs, I am going to try to explain what option contracts are and use code to describe their structure.
What is an options contract?
An option contract is a contract between two parties. The BUYER pays the SELLER money for some rights in exchange. This payment is called the premium. There are a few other important properties of this contract that will be explained here: Expiration Date, Underlying, Strike Price, option type: PUT or CALL
An options contract has the following properties or attributes:
- Expiration Date
- Symbol or Underlying
- Strike Price
- Type: Call or Put
The contract has an expiration date. This is how long the option contract lives.
The contract also has an underlying instrument that is the subject of the contract. This can be a publicly traded stock or gold or oil or anything that is traded on the exchange. Let’s say the underlying of the contract is Microsoft then that means that our options contract represents 100 Microsoft shares.
There is another attribute of the options contract called the Strike Price. This will decide the faith of the option contract when it expires.
In the next part, we will create the simple method that creates the options contract ticker that identifies the contract in the options chain.