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)
April(next to next month)
Feel free to leave comment if you need
any further clarification.
