An option contract is an agreement where the owner has got the right to purchase or sell a security or an asset at a particular price on a fixed date in the future. The owner is not committed to carry out the obligation of the contract if they feel that it's disadvantageous.
There are two types of options contracts: call options and put options.
Call Options
Basically, call options give the owner the authority to purchase the underlying asset in the contract. Again, it's not a duty.
For instance, John and Tom agreed on a call options contract wherein John will buy from Tom, 100 shares (equivalent to one option) of Company A at $20 (strike price) what will expire around the third Friday of April. The present cost of the share is $20.
Put Options
In put options, the buyer has got the right to sell a good thing to the writer (the vendor). Just like the call asset, it is bounded with a contract which states the underlying asset is going to be sold in a particular price and a particular date. However the similarity ends there. In put options, the writer needs to buy the underlying asset in the strike price when the buyer exercises this method.
Buying put options allows investors to earn money when the price of shares drops at the end of the contract.
Profit potentials are unlimited for that buyers of put options, particularly if the market begins to sell off. However, risks are limited if the market goes against them.
Important note:
In reality, trading of options or transactions does not occur between two persons. Buying or selling sometimes happens without knowing the identity of the other party.
Choices are only bought from 100 share lots. So if the stock price is $20, you will have to pay $2,000 for each option contract plus the Option Premium.
There are two types of options contracts: call options and put options.
Call Options
Basically, call options give the owner the authority to purchase the underlying asset in the contract. Again, it's not a duty.
For instance, John and Tom agreed on a call options contract wherein John will buy from Tom, 100 shares (equivalent to one option) of Company A at $20 (strike price) what will expire around the third Friday of April. The present cost of the share is $20.
Put Options
In put options, the buyer has got the right to sell a good thing to the writer (the vendor). Just like the call asset, it is bounded with a contract which states the underlying asset is going to be sold in a particular price and a particular date. However the similarity ends there. In put options, the writer needs to buy the underlying asset in the strike price when the buyer exercises this method.
Buying put options allows investors to earn money when the price of shares drops at the end of the contract.
Profit potentials are unlimited for that buyers of put options, particularly if the market begins to sell off. However, risks are limited if the market goes against them.
Important note:
In reality, trading of options or transactions does not occur between two persons. Buying or selling sometimes happens without knowing the identity of the other party.
Choices are only bought from 100 share lots. So if the stock price is $20, you will have to pay $2,000 for each option contract plus the Option Premium.
About the Author:
Are you looking for cheap wheel alignment coupons then look no further and read more here about the greatest deals on the web.
No comments:
Post a Comment