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What is an option or option contract?
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racts, they have intrinsic value and are freely traded on the futures exchanges. Futures contracts, in contrast, cannot lapse and their holder have to sell them before their expiration date or take delivery of the underlying item.
Who is an Option Buyer?
Purchaser of a call option or put option is an option buyer.
What is the Option Date?
Date by which a payment must be made to secure a reservation.
Who is an Option Holder?
Option buyer who has not yet exercised or sold the option.
What is the Margin requirement?
Percentage of a security’s value that may be used as a collateral for a loan to finance its purchase. In the US the margin requirement is 50 percent of the value of the bonds or shares, for options it varies between the premium plus 10 to 20 percent of the underlying asset’s value and is called option margin.In India the margin requirement varies from stock to stock.
What is the Option Premium?
Amount the option buyer pays and the option seller receives for granting the specified rights for the specified period under the option. Option price is market price of an option contract depending on factors such as its intrinsic value, time remaining before its expiration, and fluctuations in the value of the underlying asset.
Who is an Option Seller?
Seller of a call option or put option. The Seller is obligated to perform when the option purchaser exercise the rights under the option contract. Also called option writer.
What is a Put Option?
Formal contract between an option seller (optioner) and an option buyer (optionee) which gives the buyer the right but not the obligation to sell a specific contract, financial instrument, property, or security, at a specified price (called exercise Price) on or before the option’s expiration date. Investors who buy put options believe the price of the underlying asset will go down and they will be able to purchase (for reselling) another option on the same asset at a price lower than the current exercise price. A Put Option is the opposite of Call Option.
What is a Call Option?
Formal contract between an option seller (the optioner) and an option buyer (the optionee) which gives the option buyer the right but not the obligation to buy a specified contract, financial instrument, property, or security, at a specified price (called exercise price ) on or before the option’s expiration date. Investors who buy call options believe the price of the underlying asset will go up, and they will be able to make a high profit from a small (marginal) investment.
What is an out-of-the-money option?
Option with a negative intrinsic value. A call-option is out-of-the-money when its exercise price is above the current market price of the underlying contract. A put option is out-of-the-money when its exercise price is below the current market price of the underlying contract.
What is an in-the-money option?
Option contract with an intrinsic value. A call option is in the money when its exercise price is below the current price of the underlying asset. A put-option is in the money when its exercise price is above the underlying asset’s market price. |
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