Scribd
Upload
113 views8 pages

Understanding Options: Types and Terminology

The document discusses options contracts, defining them as contracts that give the buyer the right but not obligation to buy or sell an asset at a specified price on or before a specified date. It outlines the basic terminology including exercise price, expiration date, and option premium. It describes the main types of options as call options, which give the right to buy, and put options, which give the right to sell. Finally, it briefly mentions the different styles (European and American) and ways to write options (covered and naked).

Uploaded by

Anonymous 3H6fFBm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
113 views8 pages

Understanding Options: Types and Terminology

The document discusses options contracts, defining them as contracts that give the buyer the right but not obligation to buy or sell an asset at a specified price on or before a specified date. It outlines the basic terminology including exercise price, expiration date, and option premium. It describes the main types of options as call options, which give the right to buy, and put options, which give the right to sell. Finally, it briefly mentions the different styles (European and American) and ways to write options (covered and naked).

Uploaded by

Anonymous 3H6fFBm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

SUBMITTED TO: SUBMITTED BY:

DR. RAJNI CHUGH KANCHAN VERMA


ASSISTANT PROFESSOR ROLL NO. 39
OPTIONS:-
 An options is a contract that gives its buyer (holder) a right but not
obligation to buy or sell a specified asset at a specified price on or
before a specified future date.

 An options is a contract sold by one party to another party.

 It gives a right to the buyer. The seller has the obligation but no right.

 The buyer and the sellers are not on equal footing.

 The buyer has to pay some price , known as options premium to the
seller of the option.
BASIC TERMINOLOGY
Exercise price :- It is a specified price at which an option can be
exercised. It is also known as strike price. The exercise price for a call option
is the price at which the security can be bought (on or before the
expiration date) and the exercise price for a put option is the price at
which the security can be sold.

Expiration Date :- The date, on or before which, the option may be


exercised is termed as expiration date. Beyond this date the right of the
options holder ceases to exist.

Option Premium:- The option holder has to pay some amount known as
options premium to the option writer for availing the right. It is required
because the buyer of the options has a right while seller of the options has
obligations to buy or sell at the specified price.
TYPES OF OPTIONS
 According to the option rights:-
1. Call options
2. Put options

 According to the underlying assets:-


1. Stock option
2. Interest Rate option
3. Index option
4. Commodity option
5. Currency option
CALL OPTIONS
 An options contract that gives its holder the ‘right to buy’ a specified
asset at a specified price on or before a specified future date.

 A call option is bought when the buyer of the call option fears a rise in
underlying asset’s price.

 It is exercised when the stock price is greater than the exercise price.

 The holder of the call options can buy the stock or asset at the exercise
price which is lower than the prevailing market price.
PUT OPTIONS
 A put option provides a right to sell.

 An option contract that gives its holder the ‘right to sell’ a specified
future date.

 The seller has the obligation to buy.

 A put option is bought when the buyer of the put option fears a decline
in underlying asset’s price.

 A put option is exercised when the stock price is lower than the exercise
price.
STYLES OF OPTIONS:

EUROPEAN AMERICAN
OPTIONS OPTIONS
WAYS TO WRITE OPTIONS

Covered Naked
Option Option

You might also like