Options

by fundsacademy.com

What is an option?

“a contract giving the buyer the right but not the obligation to buy or sell an underlying asset at a specific price on or before a certain date”

Do you know your ‘Calls’ from ‘Puts’?

• Call options give the option to buy at certain price

• Put options give the option to sell at a certain price

Details on an Option Contract:

• Strike price• Right to buy or sell?• Quantity of underlying asset• Premium to be paid• Settlement details

Main Option categories:

• European option - can only be exercised on expiration

• American option - may be exercised on any trading day on or before expiry.

• Exotic option - a broad category of options that may include complex financial structures.

• Vanilla option - any option that is not exotic.

Where are options traded?

• Typically options are traded in standard contracts on several futures and options exchanges

• Some options are traded between two private parties, known as Over The Counter or OTC options.

Now take a read of below article before finally taking the quiz!

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