Option trading for beginners pdf to jpg The pit is a raised octagonal structure where open-outcry trading takes place. The steps up on the outside of the octagon and the steps down on the inside give the pit something of the appearance of an amphitheater, and allow hundreds of traders to see and hear each other during trading hours.
The importance of the pit and pit trading is emphasized by the use of a stylized pit as the logo of the CBOT. The Pit is also the title and subject of a classic novel by Frank Norris. Trades are made in the pits by bidding or offering a price and quantity of contracts, depending on the intention to buy bid or sell offer. This is generally done by using a physical representation of a trader's intentions with his hands.
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If a trader wants to buy ten contracts at a price of eight, for example, in the pit he would yell '8 for 10', stating price before quantity, and turn his palm inward toward his face, putting his index finger to his forehead denoting ten; if he were to be buying one, he would place his index finger on his chin. If the trader wants to sell five contracts at a price of eight, they would yell '5 at 8', stating quantity before price, and show one hand with palm facing outward, showing 5 fingers. The combination of hand-signals and vocal representation between the way a trader expresses bids and offers is a protection against misinterpretation by other market participants.
For historical purposes, an illustrated project to record the hand signal language used in CBOT's trading pits has been compiled and published. With the rise of electronic trading the importance of the pit has decreased substantially for many contracts, though the pit remains the best place to get complex option spreads filled. Electronic trading platforms operate virtually around the clock. From Wikipedia, the free encyclopedia.
Chicago Board of Trade Building. Retrieved from ' https: Coordinates not on Wikidata Pages using deprecated image syntax All articles with unsourced statements Articles with unsourced statements from April All articles with dead external links Articles with dead external links from November Articles with permanently dead external links. Views Read Edit View history. Investors receive a net credit for entering the position, and want the spreads to narrow or expire for profit. In contrast, an investor would have to pay to enter a debit spread. In this context, 'to narrow' means that the option sold by the trader is in the money at expiration, but by an amount that is less than the net premium received, in which event the trade is profitable but by less than the maximum that would be realized if both options of the spread were to expire worthless. Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards.