In options, there are many terms and definitions. Here is a general overview:
Option: An option is a contract. The owner of the contract has the right ("option"), if he or she chooses, to exercise the contract.
Long Put: The right to sell a stock.
Short Put: The obligation to buy a stock if the owner of the put exercises the right to sell the stock.
Long Call: The right to buy a stock.
Short Call: The obligation to sell a stock if the owner of the put exercises the right to sell the stock.
ITM: In the money
ATM: At the money
OTM: Out of the money
FEB12: The option contract expires in February 2012. Options expire on the third Saturday of the month. Last day of trading the option is that Friday.
Risk scenarios:
Unlimited: It is possible to lose more than the base investment.
Limited, but substantial: Only possible to lose as much money as put in (traditional equity)
Limited: Potential loss is not excessive.
