American Options: These options can be exercised at any time up until the expiration date. They are commonly used for stocks and are more flexible for the holder. European Options: These can only be exercised on the expiration date itself, not before. They are typically used for index options. Bermudan Options: These are a hybrid between American and European options, allowing exercise on specific dates listed in the terms of the contract. Based on Payout Structure Vanilla Options: This includes basic calls and puts with standard payout structures. A call gives the holder the right to buy an asset, while a put gives the right to sell an asset at a predetermined price until a certain date.

2. OPTIONS: INTRODUCTION - OPTION TERMINOLOGY - TYPES
- OPTIONS PAY OFF - EQUITY OPTIONS CONTRACTS IN INDIA
- INDEX OPTIONS - STOCK OPTIONS - OPTIONS TRADING
STRATEGIES - HEDGING - SPECULATION - ARBITRAGE -
STRADDLE - STRANGLES - STRIPS AND STRAPS - SPREAD
TRADING.

3. Options are financial derivatives that give the holder the right, but not
the obligation, to buy or sell an underlying asset at a predetermined
price (known as the strike price) before or at the expiration date. The
underlying asset can be stocks, bonds, commodities, or other financial
instruments.

4. THERE ARE TWO MAIN TYPES OF OPTIONS:
CALL OPTIONS:
•A call option gives the holder the right to buy the underlying asset at the
strike price within a specified time frame.
•Buyers of call options are typically bullish on the underlying asset, expecting
its price to rise.
•Sellers (writers) of call options are obligated to sell the asset if the buyer
decides to exercise the option.

5. PUT OPTIONS:
•A put option gives the holder the right to sell the underlying asset at
the strike price within a specified time frame.
•Buyers of put options are typically bearish on the underlying asset,
expecting its price to fall.
•Sellers (writers) of put options are obligated to buy the asset if the
buyer decides to exercise the option.

6. OPTIONS TERMINOLOGY
Call option:
• A contract that gives the holder the right, but not the obligation, to buy the underlying asset at
a specified price (strike price) before or at the expiration date.
Put option:
• A contract that gives the holder the right, but not the obligation, to sell the underlying asset at
a specified price (strike price) before or at the expiration date.
Strike price (exercise price):
• The pre-determined price at which the underlying asset can be bought or sold, depending on
whether it's a call or put option.

7. Expiration date:
•The date on which the option contract expires. After this date, the option is no
longer valid.
Premium:
•The price paid by the option buyer to the option seller for the rights conveyed
by the option.
In-the-money (itm):
•For a call option, it means the stock price is above the strike price. For a put
option, it means the stock price is below the strike price. These options
typically have intrinsic value.

8. Out-of-the-money (OTM):
•For a call option, it means the stock price is below the strike price. For a put
option, it means the stock price is above the strike price. These options
generally have no intrinsic value.
At-the-money (atm):
•The stock price is equal to the strike price of the option.
Intrinsic value:
•The difference between the current stock price and the strike price of an
option. It represents the real value of the option.

9. Time value (extrinsic value):
•The portion of the option premium that is not intrinsic value. It reflects the
time remaining until expiration and the uncertainty of the underlying asset's
price.
American option:
•An option that can be exercised by the holder at any time before or on the
expiration date.
European option:
•An option that can only be exercised at the expiration date.
•

10. Straddle:
•A strategy involving the purchase of both a call and a put option
with the same strike price and expiration date.
Strangle:
•Similar to a straddle but involves buying a call and a put option
with different strike prices.

11. TYPES OF OPTIONS
Options
Basic
Call
Put
others
European American
Bermudan

12. Asian options:
•The payoff of these options is based on the average price of the underlying
asset over a specific period rather than the price at expiration.
Bermudan options:
•These options can be exercised at specific dates before or at the expiration
date. They combine features of both american and european options.
Exotic options:
•Exotic options have complex structures and features that differentiate them
from standard options. Examples include barrier options, compound options,
and binary options.

13. EMPLOYEE STOCK OPTIONS (ESOS):
• These are options granted by a company to its employees as part of their compensation
packages. They often have specific vesting periods and exercise conditions.
WARRANT OPTIONS:
• Similar to standard call options, warrant options are often long-term and issued by the
company itself. They give the holder the right to buy the company's stock at a fixed price.
EXCHANGE-TRADED OPTIONS:
• These are standardized options contracts traded on organized exchanges. They have
standardized terms, including expiration dates and strike prices.

14. PARTICIPANTS IN THE OPTIONS MARKET
Buyers of call
Sellers of call
Buyers of put
Sellers of put

15. INDEX ,STOCK AND EQUITY OPTIONS
Index options, stock options, and equity options are all
types of financial derivatives that provide the holder
with the right, but not the obligation, to buy or sell a
specific underlying asset at a predetermined price
(strike price) within a specified period of time (until
expiration).

16. INDEX OPTIONS:
•Index options are options contracts where the underlying asset is a
stock market index, such as the s&p 500, dow jones industrial
average, or nasdaq-100.
•They allow investors to speculate on the overall direction of the
stock market or specific sectors without having to buy individual
stocks.
•Settlement for index options is typically in cash, rather than
physical delivery of the underlying index.

17. STOCK OPTIONS:
•Stock options are options contracts where the underlying asset is a
specific individual stock.
•They provide the holder with the right to buy (call option) or sell (put
option) a specified number of shares of the underlying stock at the
predetermined strike price before the expiration date.
•Stock options are widely used by investors and traders for purposes
such as speculation, hedging, and income generation.

18. EQUITY OPTIONS:
•Equity options are a broader category that encompasses both index
options and stock options.
•They represent options contracts where the underlying asset is any
type of equity security, including individual stocks and stock market
indices.
•Equity options provide investors with flexibility in terms of the types
of assets they can trade options on, allowing for diversification and
risk management strategies.

19. In summary, while all three types of options provide similar rights to
the holder, they differ in terms of the underlying asset they are based
on: index options are based on stock market indices, stock options are
based on individual stocks, and equity options encompass both index
and stock options. Investors and traders may choose to trade these
different types of options based on their investment objectives, risk
tolerance, and market outlook

20. OPTIONS TRADING STRATEGY-HEDGING:
Hedging involves using options contracts to mitigate the
risk associated with adverse price movements in an
underlying asset.
For example, an investor holding a portfolio of stocks may
purchase put options to protect against a potential downturn
in the market.

21. SPECULATION
•Speculation in options trading involves taking positions based on
anticipated future price movements of an underlying asset.
•Traders may buy call options if they expect the price of the
underlying asset to rise or buy put options if they anticipate a decline.
• Speculative options trading can potentially yield significant profits
but also carries higher risk.

22. ARBITRAGE:
•Arbitrage involves exploiting price discrepancies between related
financial instruments in different markets to profit from the price
differential.
•In options trading, arbitrage opportunities may arise when the prices
of options and their underlying assets are not correctly aligned.
•Traders may simultaneously buy and sell options or use other
strategies to capitalize on these price disparities.

23. STRADDLE:
•A straddle involves buying both a call option and a put option with the
same strike price and expiration date.
•Traders use this strategy when they expect significant price volatility in the
underlying asset but are unsure about the direction of the price movement.
• Profits can be made if the asset's price moves significantly in either
direction.

24. STRANGLES:
•Strangles are similar to straddles but involve buying a call option and
a put option with different strike prices, typically out-of-the-money.
•This strategy is also used when expecting significant price volatility,
but it allows for potentially lower upfront costs compared to
straddles.

25. STRIPS AND STRAPS:
•Strips and straps are advanced options trading strategies that involve
combinations of calls and puts to create more complex payoff
profiles.
•Strips are created by buying two calls and one put, while straps
involve buying two puts and one call.
• These strategies are used when traders have strong convictions about
the direction of the market and want to amplify their potential returns.

26. SPREAD TRADING:
•Spread trading involves simultaneously buying and selling options
contracts on the same underlying asset but with different strike prices
or expiration dates.
•This strategy aims to profit from the price difference between the two
options while minimizing risk exposure to changes in the underlying
asset's price.
•Common spread trading strategies include vertical spreads, horizontal
spreads, and diagonal spreads.