Page 25 - Trading #101 Course – PART II TWO: SUCCESSFUL TRADING PIE – www.traderscoach.com
P. 25
TRADING #101 COURSE – PART II TWO: SUCCESSFUL TRADING PIE – WWW.TRADERSCOACH.COM
12-01-2000 10,787.99
09-10-2001 9,605.51
09-17-2001 8,920.70
12-01-2005 10,717.50
10-01-2007 13,930.01
09-02-2008 10,850.66
10-15-2008 8,577.91
12-01-2010 11,577.51
05-13-2011 12,595.75
10-01-2012 13,096.46
12-01-2013 16,576.66
12-01-2014 17,823.07
12-01-2015 17,425.03
12-01-2016 19,762.60
10-13-2017 22,871.72
Note: Significant market dates are indicated in bold. Much of the data in this table is taken from the Yahoo! Finance
website; https://finance.yahoo.com/quote/%5EDJI/history
Options
An option is a contract between two parties concerning the buying or selling of an
underlying asset or instrument at a specific strike price on a specified date.
• Buyer of the option gains the right, but not the obligation, to engage in some
specific transaction on the asset.
• Seller of the option incurs the obligation to fulfill the transaction if requested by
the buyer.
The price of an option is derived from the difference between the reference price and
the value of the underlying asset (commonly a stock, bond, currency, or futures
contract) plus a premium based on the time remaining until the expiration of the option.
An option that conveys the right to buy something is referred to as a call; an option that
conveys the right to sell is referred to as a put. The reference price at which the
underlying asset may be traded is called the strike price. The process of activating an
option and thereby trading the underlying asset at the agreed-upon price is referred to
as exercising it. Most options have an expiration date.
If the option is not exercised by the expiration date, it becomes void and worthless.
In return for granting the option, called writing the option, the originator of the option
collects a payment or premium from the buyer. The writer of an option must make good
on delivering (or receiving) the underlying asset or its cash equivalent if the option is
exercised.
25 | P a g e
