Options Basics

What is an options contract?

A stock option contract is an arrangement between a buyer and a seller that grants the right to buy or sell a stock at a predetermined price within a specified time period.

Calls and Puts. What are they?

There are two main types of option contracts: calls and puts. A call option grants the buyer the right to purchase the underlying security at a specified price, and it obligates the seller of the call to sell the security at that price. Conversely, a put option gives the buyer the right to sell the underlying security at a specified price, and it requires the seller of the put to buy the security at that price.

Class: Refers to all options of the same type (calls or puts) for the same underlying asset.

What is options premium?

The premium is the price paid to purchase an option contract. Buyers pay a premium, sellers receive a premium.

Premium = Intrinsic Value + Time Value

• Intrinsic Value: The amount an option is in-the-money (cannot be negative). For at-the-money (ATM) or out-of-the-money (OTM) options, intrinsic value is zero.

What is the strike price?

The strike price, also known as the exercise price, is the predetermined price at which the holder of an option can buy (for a call option) or sell (for a put option) the underlying asset.

What does it mean when an option is out, at, or in the money?

In the Money (ITM)

• An option contract is considered "in the money" when it is advantageous to exercise it. A call option is in the money when the underlying stock price is above the strike price. Conversely, a put option is in the money when the underlying stock price is below the strike price. Buyers of options typically seek contracts that are in the money, as this indicates potential profitability.

At the Money (ATM)

• An option is considered "at the money" when the market price of the underlying asset is equal to the strike price.

Out of the Money (OTM)

• When an option is "out of the money," it means that exercising the option would not be profitable.

What is the expiration date?

Options have an expiration date that marks the final day the option contract remains valid. For American options, buyers can exercise their rights at any time up to and including the expiration date. Contracts that are at least $0.01 in the money at expiration will be automatically exercised. Conversely, contracts that are at or out of the money at expiration will expire worthless.

What is the breakeven point?

The breakeven point is the point at which the investor neither makes nor loses money. For call options, the breakeven point is determined by adding the strike price to the premium. For put options, the breakeven point is calculated by subtracting the premium from the strike price.

What does it mean to roll an options order?

Rolling an option is the process of closing an existing options position and opening a new one at the same time. The new order may have a different expiration date and/or strike price.

What strategies can I roll?

Covered calls, cash secured puts, long single legs, and vertical spreads can be rolled. Note, if you are rolling a vertical spread, you must maintain the integrity of the strategy. Meaning you cannot roll a vertical call credit spread into a call debit spread, diagonal, calendar, etc.

How do I roll an options order on Webull?

Rolling options is available on both the mobile and desktop apps but is not supported on WebTrade.

App:

1. Go to the Homepage.
2. Select the option position you want to roll.
3. Tap Sell to Close/Buy to Close in the bottom left corner, then click Create Rolling Order
4. Select the new expiration date and/or strike price from the options chain.
5. Review the order, which will show both the closing and opening legs.
6. Submit the order.

Desktop:

1. View the Positions widget
2. Hover over the far left column in line with the row of the desired contract and click on the three dots
3. Click "Create Rolling Order"
4. Select the desired strike price(s) and expiration date
5. Click Place Order in the bottom right of the rolling order window

Is rolling an option treated as opening a new position or modifying the existing one?

Rolling is technically treated as closing the old position and opening a new one, even though traders often think of it as simply “adjusting” the original trade. When you roll, you exit your current contract (realizing any gains or losses on it) and simultaneously enter a new contract with a different strike price, expiration date, or both.

What order types are available to trade options?

The following order types are available for options trades:

• Single-leg: Market, Limit, Stop, Stop Limit, Take Profit/Stop Loss, Conditional (mobile only).
• Multi-leg: Market, Limit, Stop, Stop Limit.

Note: Trailing stop orders are not supported for options.

What options do I have for time in force?

Both Day and GTC (Good-Til-Cancelled) orders are available for options trading.

At what times can I trade options?

Before the Expiration Date:

Most equity and ETF options trade between 9:30 AM and 4:00 PM ET, aligning with regular stock market hours. However, index options generally trade until 4:15 PM ET. It's important to note that cash-settled index options stop trading at 4:00 PM ET on the day of expiration, even though equity-settled index options continue until 4:15 PM. Despite this extended trading window, exercise and settlement are based on the 4:00 PM ET closing price.

*Please note, certain options contracts for the following securities will trade from 9:30 a.m. EST to 4:15 p.m. EST: AMJ, DBA, DBB, DBC, DBO, DIA, EEM, EFA, EWZ, GLD, HYG, IWM, IWN, IWO, KBE, KRE, MDY, MOO, NDX, NDXP, NQX, OEF, QQQ, SPY, SVIX, SVXY, UNG, UUP, UVIX, UVXY, VIXM, VIXY, VXX, VXZ, XHB, XLB, XLC, XLE, XLF, XLI, XLK, XLP, XLRE, XLU, XLV, XLY, XME, XND, XRT

On the Expiration Date:

You can submit opening orders for single-leg option strategies until 3:40 PM EST, and for multi-leg strategies until 3:00 PM EST. While you can still close positions before the market closes, please note that Webull may close your option position at any time on the expiration date if there is insufficient equity to support an exercise or assignment. To learn more about auto liquidation and the risks associated, please click here.

Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options and Option Spread Risk Disclosure before trading options.