Warrior Trading Blog

Option Series Definition: Day Trading Terminology

Option Series

Option series refers to a group of options belonging to the same security and characterized by the same price and expiration month. It can also be defined as a set of option contracts that belong to the same class and possess the same expiration date and exercise price.

A good example of an option series is where all call options for Stock A have the same exercise price and will expire on the last Friday of January.

Let’s assume Stock A has a strike price of $100. If all call options for Stock A will expire on the last Friday of January and they are traded on the same exchange, then this is referred to as an option series or series.

Types of Option Series

There are two main types of option series and they are a call option series and put option series.

Call option

This refers to the purchase of a particular quantity of stock for a specific underlying security. The stock is traded at a specific strike price and is set to happen at some point in the future.

It is important to understand that these options don’t require the owner to trade them but they do give the trader or investor the opportunity of doing so. Here is what you need to know.

Investor or traders have the opportunity of purchasing option series in order to provide flexibility. If they opt to purchase multiple options, investors and traders can exercise a single option and decide to keep the rest. This type of strategy is very useful when it comes to call options.

If the price of the options continues to rise, the investor or trader will start exercising the rest of the option with the goal of capitalizing on the price increase or close the options for to realize the profits from the appreciation in value.

Put Option

This refers to the process where an investor or trader plans to sell a particular number of shares belonging to a certain underlying security. Just like call options, this trade is set to happen sometime in the future.

If the price of the option series starts to decline, the investor will opt to start purchasing puts. This is because the investor is speculating that the decline in price is temporary.

By executing a put order, the investor will get to hedge any long position. To profit, the investor will sell his put options when the underlying has gone down and they think it is time for the stock go back up.

Final Thoughts

As said earlier, an option series is made up of option contracts with a similar exercise price, expiration date and belongs to the same underlying security. This goes for both put or call options.