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Video transcript
Voiceover: Here are some option quotes from CNBC.com and my goal here is to really just familiarize you with the quote, so you know what you're looking at. So the first thing to realize is that options are categorized by expiration dates. So these options that I've listed right here are expiring in April 2011 and options expire or they usually expire on the third Friday of any month or I guess to be exact, the third Friday of the month is the last day that you could trade them. They officially expire the Saturday after that. And these are options on GE, the last stock quote. It last traded at $18.95 and the way that that's listed on CNBC.com, and it tends to be listed this way pretty much anywhere that you look at option quotes, is that they list the calls on one side and then the puts on the other side and these are obviously calls and puts on General Electric and then they write the strike prices down the middle in increasing order. So the first column, this is just the symbol for that particular option. This is the last trading price. This is how much it's changed that day. The low and the high give the range of trading that day on that option. Volume tells us how many options actually traded that day and open interest, which is something that you're probably not familiar with if you've only looked at stock quotes, tells us how many actual, open options contracts of that type are actually in existence. So if you look right over here, this tells us that there are 399 open con ... open call options with a $14 stock ... strike price at an April 2011 expiration on General Electric. And it tells us that none of those 399 open options actually traded that day. If any of these 399 options get exercised, then it'll go down to 398. If someone writes a new option, then it'll go up to 400. And the way it's listed here is that the "in the money" options are listed in this light blue color and that the "out of the money" options don't get the light blue color. And so you can see the "in the money" call options are the ones that have the strike price below ... below today's current strike price. Because if you had a call option for $17 that gives you the right to buy GE for $17 and if you exercise it today, you'd buy it at $17 and you could immediately sell that stock for $18.95. So you would immediately make $1.95 profit. And you could see right here that the stock is or the option I should say, is actually trading a little bit above that and that's because it has the optionality. You can definitely make $1.95 on it, but you might want to keep it around because you can potentially get the upside on GE stock, up to the third Friday of April 2011 while having a limited downside. The most you could lose here is the price that you paid for your option. And then you can see the put options that are in the money, are the ones that have a strike price above the current trading price. If I had a $20 ... If I had a put option with a $20 strike or a $20 exercise price, that means that I could go out in the market today, buy the stock for $18.95 and then immediately sell it for $20. So I would make an immediate $1.05 profit and you could see here that the option is trading for a little bit more than $1.05 because of the optionality.