Futures and Options (7)

Options (1)

Options give the buyer/holder of the option the right, but not the obligation, to buy or sell a specified asset at a specified price (strike price), at or before a specified date from the seller, for which the buyer pays a premium.

(This limits the buyer's potential loss in the options market to the amount of his premium.)

Options that give the buyer the right to buy are known as calls.

Options that give the buyer the right to sell are known as puts.

The seller of the option has a contingent liability or an obligation, which is activated if the buyer exercises his right.

To understand how options work, examples which are not to be construed as investment advice to trade in options, but are for illustration purposes only.