npavan78
21-07-2008, 07:23 AM
Options
Option contract is a type of Derivative Instrument, which has two parties the option holder and the option writer. The option holder has the right, but not the obligation, to buy or sell an underlying asset (a stock or index) at a specific price on or before a certain date with the option issuer or option writer).
For consideration, which is called the option premium, the buyer / holder of the option, purchases the rights from the seller/writer. When the buyer / holder exercises his right, the seller / writer of an option is obligated to settle the option as per the terms of the contract.
People who buy options have a Right to Exercise
Call Options- An Option where the buyer of the option has the right but not the obligation to buy the option is called Call option. It gives the holder the right to purchase an asset for a specified price, called the exercise or strike price, on or before the expiration date.
Put Options- An option where the buyer of the option has the right but not the obligation to sell the option is called Put option. It gives its holder the right to sell an asset for a specified exercise price on or before the expiration date.
American Option- An option that is exercisable on or before the expiry date.
European Option- an option that is exercisable only on expiry date.
Exercise Price- The price at which the option is to be exercised is called Strike price or Exercise Price.
Option contract is a type of Derivative Instrument, which has two parties the option holder and the option writer. The option holder has the right, but not the obligation, to buy or sell an underlying asset (a stock or index) at a specific price on or before a certain date with the option issuer or option writer).
For consideration, which is called the option premium, the buyer / holder of the option, purchases the rights from the seller/writer. When the buyer / holder exercises his right, the seller / writer of an option is obligated to settle the option as per the terms of the contract.
People who buy options have a Right to Exercise
Call Options- An Option where the buyer of the option has the right but not the obligation to buy the option is called Call option. It gives the holder the right to purchase an asset for a specified price, called the exercise or strike price, on or before the expiration date.
Put Options- An option where the buyer of the option has the right but not the obligation to sell the option is called Put option. It gives its holder the right to sell an asset for a specified exercise price on or before the expiration date.
American Option- An option that is exercisable on or before the expiry date.
European Option- an option that is exercisable only on expiry date.
Exercise Price- The price at which the option is to be exercised is called Strike price or Exercise Price.