What is an option?“a contract giving the buyer the right but not theobligation to buy or sell an underlying asset at aspecific 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.
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