Glossary
Terms, defined plainly
- Covered callOptions
- Owning shares and selling a call against them: premium income, capped upside, stock downside remains.
- Lesson: Covered calls and protective puts
- Dealing rangeSMC
- A chosen swing low-to-high range used to define premium, discount and equilibrium.
- Lesson: Premium, discount and the dealing range
- Option breakevenOptions
- Underlying price at expiration where P/L is zero: strike + premium for calls, strike − premium for puts.
- Lesson: Payoff diagrams, breakeven and maximum loss
- Option premiumOptions
- The price of an option, quoted per share; one standard contract usually covers 100 shares.
- Lesson: Calls and puts: rights and obligations
- Premium / discountSMC
- The upper and lower halves of a dealing range. A geometric location, not a valuation.
- Lesson: Premium, discount and the dealing range
- Protective putOptions
- Owning shares and buying a put to set a floor, at the cost of the premium.
- Lesson: Covered calls and protective puts
- Time valueOptions
- Premium minus intrinsic value; decays toward zero at expiration.
- Lesson: Premium: intrinsic value and time value