Canadian Stock Options



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Canada is home to a very large stock option & warrants market. This page will provide you the basics on stock options.

Stock options are, as the name implies, an instrument that allows you the future option to make a stock transaction. A Put option is a bet against a particular underlying stock and a call option is a bet for a particular stock. Simply described, puts are an option to short a stock at a future date and calls are an option to buy.

Options have several properties assigned to them that an astute Canadian investor should note, they are strike, underlying & expiry

One of the most common questions I get is "what are stock options?"

Call vs. Put Options

We will now attempt to explain the finer points of trading stock options. As we mentioned above, all options have an expiry date.  If your options expires outside of the strike price (above it if you are buying a call option or below it if you bought a put), then the option is now worthless.  However, if the opposite is true, the option is exchanged for shares bought at the strike price. 

An option that is beyond the strike price is considered to be “in-the-money”, meaning that if it expired today, it would not be worthless.  An option out of the money, as you may have guess, is the opposite.
Where do the underlying shares & options come from?

All options are written by another trader.  If you write an option and sell it to someone, you are most likely hoping the opposite will be true.  If you sell a Put, then you are hedging against the share price increasing and if you sell a Call you are hedging against it declining.  The other option for Canadian option traders is to sell uncovered options.  Ie. you sell options for stocks in which you do not own the underlying.  Many brokers will not let you do this as it is very financial dangerous.

One final thing that you should know about options is they are rarely held until the expiry date.  Options are traded on stock exchanges virtually the same way stocks are.  They have a classic bid/ask spread, volume and other properties of stocks.  Some long dated options (dated years in advance) have value and price movements that sometimes mostly mimic the underlying stock itself. 

Canadians have many reasons to buy & sell options.  They include: hedging, speculating, long term investing and more.  We will go over some of these strategies in greater detail on this website in the future.

Forthcoming Articles about Canadian Option Trading:

Books About Stock Options Trading

There are several books we can recommend on stock options. Some have a Canadian emphasis, some are strictly for beginners, and others still are applicable mainly to those who have traded and studied options extensively. Most are available on Amazon.ca and our list will soon be compiled.