Option Trading Agreement Questrade

Now that you`ve learned the basics, we`re learning with a few examples. Example 1 (long call options): Jackie has been researching the XYZ stock for some time and believes, based on her findings, that the stock will increase significantly in the near future compared to the current price of $20 per share. Instead of buying shares of XYZ, Jackie decided to buy a call option on XYZ, which will take place in 12 months at a strike price of 25 $US. 10 months pass and the XYZ share is traded at 27 $US per share. The option is in-the-money (see glossary). Now Jackie faces two options: exercise her rights on the option to buy 100 XYZ shares for $25 per share (strike price) against the current market price of $27 per share and pay a sale fee Sell the call option via a stock exchange. Since this call option has the right to purchase XYZ shares at a price below the current market value, it has intrinsic value and will therefore most likely be sold with a profit. At this point, Jackie`s long call option would be considered out-of-the-money (see glossary), and it would not be in her best interest to exercise his rights, as he would not pay $25 per share to buy XYZ if he could buy it on the market for $15. In this case, the seller of the option receives the premium paid by the buyer (Jackie) when the contract is concluded. In conclusion, Jackie pays a premium to the call recorder to reserve her right to purchase XYZ shares on a future date, on or before the contract expiry date, for $25 per share. Example 2 (Long Selling Options): Stu has been studying the FFF`s stock for some time and believes, based on its findings, that the stock will lose value over the next 12 months from the current price of $50 per share. Instead of too short-circuiting FFF shares, Stu decided to buy 1 put option on FFF, which expires in a year from today at a strike price of $45. 9 months ago and Stu was right about his forecasts, XYZ stock has fallen and it is now for $43 per share to trade.

The option is in-the-money (see glossary). Now Stu faces two options: use his option to sell 100 FFF shares to the options recorder at a price of $45 per share (strike price) instead of selling FFF shares at the current market price of $43 per share. Because Stu did not hold shares, the sale of FFF shares to the options recorder will create a short position in the Stus account for $45 per share. Sell the call option with your rights to another investor in the market via a stock exchange. Since this put option has the right to sell FFF shares at a higher price relative to the current market value, it has intrinsic value and can therefore most likely be sold at a profit. Suppose Stu was wrong in his forecast and the FFF stock went from $50 per share to $55 per share on the expiry date.