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Log for Options Study

October 10, 2009 Leave a comment

Options

Securities that gives owner right to buy underlying asset at a specific Strike Price by specified Expiration Date. Price you pay to own the option is called Option Premium. Sounds familiar!! Yeah…it does sound like insurance premium (but it is not the same).

There are only two type of option:

  • Call Options: Gives holder right to buy (go long) an underlying asset at specific price by specified time.
  • Put Options: Gives holder right to sell (go short) an underlying asset at specific price by specified time.

Traders buy combination of Call and put options to form option strategies to profit from.

Note:

Options for stocks are mostly traded in multiples of 100.

Options holders have right to exercise the option, but not obligated to do so. The cost of not doing so is the option premium.

Option writers are theĀ  obligated to deliver the underlying asset (sell or buy), when option holder decides to exercise valid option.

Read more…

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