Glossary

Strike price – this is the current price at which the underlying asset can be bought or sold.
Option – is the premium derived from the agreement to purchase an underlying asset.
Option price – is the total price of a premium or an option. It is determined by factors such as strike price and time remaining to expiration.
Exercising an option – This is the act of fulfilling the option.
Expiration date – Is the date at which the option will be considered worthless if not exercised.
Premium – this is similar to option price. It is the profit derived from the underlying asset.
Volatility – This is the amount of risk or uncertainty about the changing values of an asset. A low volatile asset means that the value of the asset does not fluctuate abruptly, that is, it goes through a slow and steady change while a highly volatile price can go through a sudden dramatic change within a short period of time.
Hedging – Is an act to reduce massive losses through price movements by making investments.
Derivatives – these are values that are extracted.
Speculations – a speculator is the individual who trades the derivatives. Therefore, speculation is the act of trading keeping in mind the possible turn of events.
In the money – this refers to a situation when the strike price of the asset is lower the market price
Intrinsic value- This is the portion of the in money in the option’s premium. For example, if the strike price is $ 10 while the underlying asset’s current market price is $ 20, then the intrinsic value is $ 10
Leverage – This is using a financial instrument like borrowed capital in an attempt to increase the probabilities on profits in an investment.