Found this video on youtube… it gives a very entertaining introduction to CALL options… in the form of an animation… very nice drawing… and it explains CALL options in very clear layman terms… You can fast forward to 1:25 to go direct to the animation if you want…
However, because this animation is meant to be a preparation for a seminar… it does leave out some details…
Firstly, it left the “Option Clearing House” out of the picture… In the animation, it shows the options transaction between Ali and Abu.. In reality, an option transaction is not done directly between a buyer and seller… Instead, the Options Clearing Corporation (OCC) acts as a middle man, the buyer actually pays the clearing house, which then pays the seller… In addition, the OCC acts as guarantor, they ensure that the obligations of the contracts they clear are fulfilled….
To keep things simple, the animation also does not state the terms commonly used in options trading… In the animation, Ali pays $1 to Abu for the right to purchase Microsoft at $20 one month later….
$1 is known as the Options Premium, $20 the strike price.. Suppose the current month is September, then if the option expires one month later, Oct is known as the expiry month… All options will expire on the third Fri of the expiry month (except when it falls on a holiday, in which case it is on Thursday)
