Investment Basics

In the realm of option trading and in very broad terms, open interest will tell you how many options are traded at a given time. Specifically, these options are call options against the same underlying stock, with the same expiration date as well as same strike price. Net debit represents how much money an investor spends to make a buy-write transaction.

Both of these are important economic indicators you should be aware of when trading options. With open interest it's a little bit like in fashion trends. If everybody likes a certain style of clothing, you'll be pretty safe selling that same style, since it's been tried and proven. As a general strategy, analysts advise launching into writing call options only after their open interest exceeds 1000. It just means that at least 1000 options were transacted already. This is done to in order to have a reasonable guarantee that there is more liquidity for your call option(s).

Net debit is the simple difference between how much you spend on acquiring some stock and the premium of the call option you cash in for selling it against that stock. The name debit derives from the fact that your account will be debited as an immediate result of a buy-write transaction (aka covered call). On one side you spend big on the stock (say $5000 on a package of 100 shares) and cash in a little in the form of the option premium (say $200). Your net debit would be $4800.

The net debit that you can spend can be easily reduced if you use your call options wisely. This is especially due to how there are so many open interest options around. You can find details on how this can work and how it will be easy to work with call options through the Born to Sell site.