Introduction to Options

Introduction to Options:

An Option is a financial derivative instrument which gives the right but not the obligation to the option holder to either sell or buy an underlying asset at a pre-specified date i.e. expiry date and at a pre-specific price i.e. the strike price. The option seller has the obligation to fulfill the transaction as and when the option holder

Demands (exercise or not to exercise decision rests with the option holder). The option writer receives a reward, for sale of this right to the option buyer, known as ‘Premium’.

2 types of Option:

1. Call Option

A Call Option gives an option buyer (then holder) the right but not the obligation to buy the underlying

asset (stock, commodity, currency, etc.) at a pre-specific price (strike price) and at a pre-specified

date (expiry date).

2. Put Option

A Put Option gives an option buyer (then holder) the right but not the obligation to sell the underlying

asset (stock, commodity, currency, etc.) at a pre-specific price (strike price) and at a pre-specified

date (expiry date).

Duration of an Option:

In India, options can be traded for 3 months:

1. Near Month

February(current on-going month)

2. Next Month                                                                        

March(next month)

3. Far Month 
April(next to next month)

 Feel free to leave comment if you need any further clarification.