Option Trading : In and Out Information

 Option Trading : In and Out Information

■ What is Option Trading ?

         An option is a contract that is written by a seller that conveys to the buyer the right  but not an obligation to buy or to sell a particular asset at a specific price in future. In return, the seller collects a payment from the buyer known as premium. 

Index Options : 

     These are the options that have an index as the underlying. Examples : Nifty Options etc.

Stock Options : 

      These are the options on the individual stocks. The contract gives holder the right to buy or sell the underlying shares at the specified price.

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■ Terms used in Option Trading :

● Premium : The price that the option buyer pays the option seller is referred as option premium.

● Expiry Date : The date specified in an option contract is known as the exercise date or expiry date. 

● Strike Price : The price at which the contract is entered termed as exercise price or strike price.

● American Option : The option that can be exercised at any date until the expiry date. 

● European Option : The option that can be exercised only on the expiry date.

● Call Option : An option that provides the holder the right but not obligation to buy an asset at a set price before a certain date.

● Put Option : An option that offers the holder the right but not obligation to sell an asset at a set price before a certain date. 

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