Options
An option gives its Owner the right to buy or sell an Underlying asset on or before a given date at a fixed price.
There can be as may different option contracts as the number of items to buy or sell they are,
Stock options, Commodity options, Foreign exchange options and interest rate options are traded on and off organized exchanges across the globe.
Options belong to a broader class of assets called Contingent claims.
The option to buy is a call option.The option to sell is a PutOption.
The option holder is the buyer of the option and the option writer is the seller of the option.
The fixed price at which the option holder can buy or sell the underlying asset is called the exercise price or Striking price.
A European option can be excercised only on the expiration date where as an American option can be excercised on or before the expiration date.
Options traded on an exchange are called exchange traded option and options not traded on an exchange are called over-the-counter optios.
When stock price (S1) <= Exercise price (E1) the call is said to be out of money and is worthless.
When S1>E1 the call is said to be in the money and its value is S1-E1.
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