The option market is the stock market’s

central nervous system.

How an Option Contract and
Underlying Stock are linked:

One Option Contract = 100 Shares of Stock

Options are “Derivatives” – meaning they “DERIVE”

their value from the underlying stock.

An option is just a paper contract.
That contract must be LINKED to a
stock of some company, which is called the
UNDERLYING STOCK.

Underlying stock: “Without me, you’re nothing!”

Question:

1.An option contract and an underlying stock are linked because:

A.___you receive 100 options for one share of stock
B.___an option and a share of stock cost the same
C.___an option is derived from the stock share price.

THE SECRET

Buy a Company’s Stock Who You Like —
and Who You Wouldn’t Mind Giving Your Credit Card To.

The underlying stock and option move together.
Where the stock goes, the option follows.

Question:

2.The underlying stock and the stock option:

A.___move together
B.___each go their own separate ways
C.___are not related in any way.

A popular selection method is to use a one-year
“rolling stock chart” and select options as the stock dips,
confident it will peak back up.

Pass on stocks that are just chugging along
in a bumpy horizontal straight line.

Keep it simple – To find out the weather;
why use barometric pressure, moon signs, or a meteorologist
–when you can just look out the window?

Another method to select a stock option is to keep alert to what insiders are buying and selling.

https://www.insidearbitrage.com/introduction-to-insider-trading/ This site provides weekly details of large stock buying and selling by company insiders. It seems logical that if owners of a company are buying/selling their own stock, they must know something we don’t know.

Question:

3. What is one secret to selecting an underlying stock?

A.___A tip from an employee in Walmart
B. ___If the stock is a Penny stock
C.___ Stock share price has fluctuated in the last year.

BEWARE OF CONFUSING CONTRACTS AND SHARES!

One Option Contract = 100 Shares of the Underlying Stock.

100 Option Contracts = 10,000 Shares of Underlying Stock!

Question:

4. Ten option contracts equal:

A.___ 10 shares underlying stock
B.___ 1,000 shares underlying stock
C.___ 10,000 shares underlying stock

Answers: 1 –C;    2 –A;   3 –C;    4 — B

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