Understanding Option Trading and Its Derivatives
'An Option is a contract between two parties concerning the buying or selling of an asset at a set price before a set date.' Before we look at the different types of options available, let us quickly glance at the information an option contract should contain. The first thing the option contract should specify is whether the option holder has the right to buy (call option) or the right to sell (Put Option). Another important piece of information is the quantity and class of the underlying asset. By this, we mean the amount and the type of shares being bought or sold. The third important piece of information which must be specified in the contract is the strike price (i.e. price buyer would be paying for the asset when the option is exercised). The fourth item to be specified in the contract would be the expiration date of the option (i.e. the last day the option can be exercised). The fifth item to be written in the contract would be the settlement terms....