Introduction to call_and_put_options

Jun 28th, 2015
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OPTION Abandonment option • The option of terminating an investment earlier than originally planned. American option • An option that may be exercised at any time up to and including the expiration date. Related: European option • An option that may be exercised at any time during the life of the option. Stock options that trade in U.S. option exchanges, such as the CBOE, are of American types. Index options are of either American (option on S&P100 index, called OEX) or European types (option on S&P500 index, called SPX). See call and put options.

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Key features of an option contract:The key features are: Exercise price, expiration date and time to expiration.The exercise price is also called the fixed price, strike price or just the strike and is determined at the beginning of the transaction. It is the fixed price at which the holder of the call or put can buy or sell the underlying asset. Exercising is using this right the option grants you to buy or sell the underlying asset. The seller may have a potential commitment to buy or sell the asset if the buyer exercises his right on the option.The expiration date is the final date that the option holder has to exercise her right to buy or sell the underlying asset.Time to expiration is the amount of time from the purchase of the option until the expiration date. At expiration, the call holder will pay the exercise price and receive the underlying securities (or an equivalent cash settlement) if the option expires in the money. The call seller will deliver the securities at the exercise price and receive the cash value of those securities or receive equivalent cash settlement in lieu of delivering the securities.Defaults on options work the same way as they do with forward contracts. Defaults on over-the counter option transactions are based on counterparties, while exchange-traded options use a clearing house.Difference between a put option and call option:An option is a contract between two parties where one party gives the other a right but not an obligation

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