A study on call_and_put_options

Jun 28th, 2015
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A. T. Still University
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A call option is a financial contract between two parties, the buyer and the seller of this type of option. Often it is simply labeled a "call". The buyer of the option has the right but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time for a certain price (the strike price). The seller (or "writer") is obliged to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.

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CURRENCYOPTIONSINTRODUCTIONA currency option is no different from a stock optionexcept that the underlying asset is foreignexchange. The basic premises remain the same: thebuyer of option has the right but no obligationto enter into a contract with the seller. Therefore thebuyer of a currency option has the right, to hisadvantage, to enter into the specified contractTERMINOLOGY OF CURRENCYOPTIONS Call Option:A call option will have intrinsicvalue only when the spot price is above the strike price. Put Option:A put option will haveintrinsic value only when the spot price is below the strikeprice. Intrinsic Value Of The Option:- Intrinsicvalue is simply the difference between the spot price and thestrike price. Time Value Of The Option:- When the price of a call or putoption is greater than its intrinsic value, it is because of itstime value. Strike Price/ Exercise Price:- The price at which aspecific derivative contract can be exercised. Strike pricesis mostly used to describe stock and index options, inwhich strike prices are fixed in the contract. For calloptions, the strike price is where the security can bebought (up to the expiration date), while for put optionsthe strike price is the price at which shares can be sold. Maturity / Expiry Date:- The date on which anoption expires and after that date the option can notbe exercised. American Option:- An option that can be exercisedanytime during its life. Eur

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