• Types of Options

    There are mainly four types of options are used:

    Buy Call Option

    Call options buyers get the right to buy an underlying index or security at a particular price (strike or exercise price) on a particular date (expiry date). The call writer has to sell the asset at that price if the call buyer exercises the option. As the call buyer owns the rights, there is no credit risk involved and he pays only the premium to buy the right.

    Buying call options are used to take long positions in the market as it bets for price increase in the short term future.

    Sell or Write Call Option

    Call options seller are obliged to sell an underlying index or security at a particular price (same as strike or exercise price) on a particular date (expiry date) if the buyer exercises the option. The call writer has no other choice except to sell the asset at that price if the call buyer exercises the option. As the call writer is obliged to sell if the buyer uses his right, there is significant credit risk involved and he has to pay huge margin amount to sell the call option premium.

    Selling call options are used to take Short positions in the market as it bets for price decrease or stable range bound price in the short term future.

    Buy Put Option

    Put options buyers get the right to sell an underlying index or security at a particular price (same as strike or exercise price) on a particular date (expiry date). The put writer has to buy the asset at that price if the put buyer exercises the option. As the put buyer owns the rights, there is no credit risk involved and he pays only the premium to buy the right.

    Buying put options are used to take Short positions in the market as it bets for price decrease in the short term future.

    Sell or Write Put Options

    Put options seller are obliged to buy an underlying index or security at a particular price (same as strike or exercise price) on a particular date (expiry date) if the put buyer exercises the option. The put writer has no other choice except to buy the asset at that price if the put buyer exercises the option. As the put writer is obliged to buy if the seller uses his right, there is significant credit risk involved and he has to pay huge margin amount to sell the put option premium.

    Selling put options are used to take long positions in the market as it bets for price increase or stable range bound price in the short term future.

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