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What is the options – part 1

June 19, 2015

By Gulshan Malhotra

I would like to talk in this article briefly about options. When we buy any stock we carry the associated risk and opportunity related the same security. Maximum risk in any security is upto the value of that security while opportunity is unlimited. Option is a tool which enable investor to sell or purchase the risk / opportunity partially. In lieu the seller get  compensated for buying right for buying or selling at the price which is part of the deal by a premium paid by buyer for selling obligation for buying or selling at the price agreed. They also gets agree with the time period for the deal. Before talking about practicle example. Let us talk about the common terms which are used while dealing with options:
● Buy call: buying right to buy security
● Sell call: selling obligation to sell security
● Buy put: buying right to sell security
● Sell put: selling obligation to purchase security
● Strike price: strike price is the price of security which is part of buy/ sell
● Expiry date: expiry date is a date when the commitment related to right or obligation will expire.

In the next part I will talk more with practicle example.

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