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Options Simplified – Part 1

, March 10, 2012, 0 Comments

In order to create a rich pool of Informed investor and to take advantage of untapped potential of  “Financial Options market”, MarketExpress and Options Analytics presents a two part series on anatomy of Options.

Q     : What is an ‘Option’?
Ans : An ‘Option’ is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset(underlying) at a reference price(the strike). The buyer of the option gains the right, but not the obligation, to exercise the right, while the seller incurs the corresponding obligation to fulfill the transaction.

Q     : What are the type of option?
Ans : There are two type of Option, “Call Option” and “Put Option”

Q     : What are the parties involved in Option trade?
Ans : As always any trade involves two party, i.e. Buy and Seller. Buyer of
option is also known as “Holder” and Seller of option is also known as
“Writer”

Q      : What are the types of markets in which Option Contracts are
available for trading in India?

Ans : In India, as of now Options trading are allowed in Equity Shares (Stock Options) Equity Indices (Index Options) and Currencies.

Q     : Can I trade options in ‘Commodity markets’?
Ans : Currently Option trading in Commodities are not permitted in India.

Q     : What are the Exchanges where Option Contracts are tradable?
Ans : Equity and Currency options are tradable on National Stock Exchange
(NSE) and on Bombay Stock Exchange (BSE) Equity options are tradable.

Q      : What is ‘Underlying’?
Ans : Refers to the Asset upon which Option Contracts will be traded and            whose Spot Price will be treated as Settlement Price. For Stocks option
Individual Stock will be the Underlying & for Index Option NIFTY would
be the Underlying. For Currency options respective Currency would be
the Underlying.

Q     : What is Call Option?
Ans : A Call option is a contract between two parties to exchange an asset
(underlying) at a specified price(strike), by a predetermined
date(expiry). One party, the buyer of the Call, ‘has the Right’,
but ‘not an obligation‘,  to Buy the asset at the strike price by the
future date, while the other party(seller), has the obligation to sell the
asset at the strike price if the buyer exercises the option.

Q     : What is Put Option?
Ans : A Put option is a contract between two parties to exchange an asset
(underlying) at a specified price(strike), by a predetermined
date(expiry). One party, the buyer of the Put, ‘has the Right’,
but ‘not an obligation‘,  to Sell the asset at the strike price by the
future date, while the other party(seller), has the obligation to buy the
asset at the strike price if the buyer exercises the option.






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Options Analytics team comprises of people from the field of Analytics and Statistics, Independent Option traders, Technical Analyst, Financial Modelling Specialist and Quants. ...more