Two types of option, Options: Definition, Types
April 16th, at pm Hi, Is short selling a put option equivalent to buying a call option, since in both situations you are bullish on the market directions.
Options: Definition, Types
March 30th, at pm Hi Tony, Sort of - when you exercise you will need to sell the underlying. If you don't already own the underlying then you will have a short position in the underlying. Tony March 30th, at am Hi Peter. Great site. Let's suppose I have not purchased the underlying. If I buy a Put option, demo advisor I decide to exercise it, then it means that I have to buy the unerlying at the market price and then sell it at the strike price?
Thanks in advance. Peter March 27th, at pm There isn't any better choice between the two types as they both have different characteristics. Retail traders may buy calls if they think the market will rise and buy puts if they think that the market will fall.
Almas March 27th, at am which option is better for investor generally? Peter March 26th, at pm Hi Achu, A double option is an option combination of a call and two types of option put with an "or" condition.
Achu Anil March 21st, at am What is double option? Arick March 15th, at am put option and call option are the two face of a coin there is no individual exercise, that is when in the share market there is a sell of underlying asset put option there has to be a call option.
Peter February 14th, at pm Hi Amarendra, A call option provides the buyer the right to buy an underlying asset such as a stock at fixed price and date in the future. For this right the buyer pays a price for the option called premium to the option seller. Amarendra nath Roy February 14th, at am What is call option? Please explain. Peter December 20th, at pm Hi Daniel, It depends where you are trading and what broker you use.
Daniel December 20th, at am Mr Peter, when do the exercise, who among call writer, put holder, put writer and dealing center operation technology holder will pay for the exercise?
Peter December 12th, at pm Hi Ravi, A long position is where you have paid money and own "rights" to the asset - in the case of options, you have the right to exercise the option. A short position is where you have sold something that you don't actually own. When you short options you receive money upfront as a result of the transaction two types of option the right to exercise sits with the buyer holder of the option. Ravi December 12th, at am Dear Sir, 1.
I two types of option whether what situation short sale is allowed? Peter December 8th, at am Hi Daniel, Option buyers holders pay the premium to the option sellers writers.
So, sellers receive the money up front when the trade takes place. Daniel December 8th, at am Hi Peter, could you please help me? I want to know who are can make payment and receive payment among of call option writer, put option writer, call option holder and put option holder.
Peter November 21st, at pm The strike price is the price that you will have to buy or sell the underlying at if the option is exercised. Peter Please see the page Why Trade Options. Sarah November 18th, at pm When do we use options? And why do we use it? Peter November 17th, at pm If the call option is out of the money at the expiration date then the strike price will be higher than the current market price - so you would be better buying the stock directly via the exchange.
Rajesh November 17th, at am Hi Peter, I have a question here. If yes, how much quantity we need to buy Is it the lot size or for the money which we invested for the option?
Please help me.
Rights vs Obligations
Eli October 7th, at am It was an assignment question and my answer was the value of options are same when the underlying price is equal to the strike price I hope my make money on the internet island is correct.
Again thank you so much for your quick reply. Peter October 6th, at pm Hi Eli, The options will be approximately equal when the strike price is the same as the stock price ATM. Well, it's really when the "forward price" of the stock is the same as the strike price where the forward price takes into consideration the interest rates and dividends of the stock.
Eli October 6th, at pm Hi Peter, Many thanks for your kind response. I learned many terms via your answers : My question is that in what condition the value of a call option and a put option of a stock with the same maturity date can be equal?
Peter August 13th, at pm No, there is no obligation as the trader no longer has a short position. Peter August 7th, at am Well put Rachel! August 6th, at pm Kris April 6th, at pm Hi, Two types of option question.
There are two parties: the writer and the holder. The person who bought the put option is also called the holder. He has the right but binary options setups the obligation to sell the underling stock.
Here's what all these terms mean: Option: You pay for the option, or right, to make the transaction you want. You are under no obligation to do so. Derivative: The option derives its value from that of the underlying asset.
However, the writer also known as the seller has the obligation to buy back the underlying stock if the holder choose to exercise the put option. So the seller of the put option will buy back the stock if the buyer of the put option choose to exercise their right, even when the market price if much lower than the exercise two types of option.
Peter May 18th, at pm Yep, you can have bonds and bills as underlying assets - you can also trade options on an index, forex, commodity futures, agricultural futures and even weather futures. Check out the CME for more. The buyers will almost always be market makers who are obligated by the exchange to provide a two way market in option contracts. Market makers will place bids on these ITM options based on the fair value of the option in an attempt to hedge it back with the underlying stock.
Paul February 23rd, at am Thanks Peter. One last question. If options depreciate as they near their expiry date are they difficult to sell even if they are well in-the-money?
Why would the option value matter when the broker will pay the profit even after the option expires? Peter February 22nd, at pm Hi Paul, All options can be traded out i. And yes to your second question - as settlement type is irrelevent you can sell the option back in market to realize a profit. Physical delivery just means that if you do hold the option until the expiration date and decide to "exercise" the option, you will need to deliver or be delivered the underlying asset that the option is based on - as apposed to simply receiving a cash settlement.
Paul February 22nd, at pm Hi Peter, Me again.
If so, why is it called a physical settled option? So, even though the shares only went up 3.
Buying vs Selling Options
Paul February 22nd, at pm Hi Peter. Another question: Would it be correct to say that a physical delivery option is an option which must be exercised and cannot be sold? Peter February 22nd, at am Hi Paul, there isn't anything about the option that tells you the settlement type - you just have to check out the specifications with the exchange. If you search the exchange website for "contract specifications" you'll usually find it ok.
Generally speaking I would say that equity options options based on a stock are physically settled and index options are cash settled. Paul February 22nd, at am Hi. Can you tell me how to distinguish between physical delivery options and cash settled options. In other words, if I only want to buy options which can be sold for cash compare trading platforms how can I distinguish these from physical delivery options.
Peter January 19th, at pm Hi Sash, Thanks for the positive feedback! Now, about the option - it depends on how bullish you are on the stock. That is ti say how far you think the stock will move after the open. At-the-money options are most sensitive to stock price changes and hence will two types of option large gains initially, however, the further the stock moves away from the strike price the less sensitive the changes become.
- Mega strategy for binary options
- An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike priceprior to the expiration date.
- The strike price may be set by reference to the spot price market price of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount or at a premium.
- Options Contract Definition
For this reason you may want to look at options that are slightly out-of-the-money. This way as the stock approaches the strike price it becomes more sensitive to the stock price movements and the option's percentage return will be far greater.
This concept of sensitivity has to do with the option's Delta sensitivity to stock price movements and Gamma the option's delta sensitivity. If you expect a very large move, then you would choose an option that is very far out-of-the-money, which would likey have a very low purchase price.
And as the stock rallies hard towards the strike price the more value it gains - but more importantly the more two types of option gain on the initial purchase price of the option. Sash January 19th, at pm Hello Mr. I am lucky to stumble across this site. You did a great job explaining a concept that is so difficult to understand atleast for me.
My Question is: Lets say I determine based on research that a particular stock eg:X is going to go up today before the stock exchange open. If so, how do I determine which call option to pick? Should I select a call option that has high open interest or should I go with an option that has high volume? Or neither? Thank you so much again!
Good bless your heart! Peter September 23rd, at am Yes, the stock price can only go to zero, but the terminology for the profit on the option is still most commonly known as being "unlimited". Dave September 21st, at pm There is an error in your text in paragraph 8. It says "buyer's of put options have unlimited profit potential" when in fact profit is limited at 0.
Peter April 8th, at am Hi Kris, nobody would but that is the risk you take when you "sell" an option as apposed to "buy" an option. The buyer has the "right" to exercise and the seller has the "obligation" to deliver if the buyer decides to exercise.
Kris April 6th, at pm Hi, Quick question. Peter May 12th, at am Hi Glen, Absolutely!
This is how most people would trade options I'm not sure about your second question though. Can you elaborate?
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- Types of Options - Information on Different Options Types
Glen O'Riordan May 8th, at am Can two types of option buy two types of option option, let's say a call option, with no intention of exercising it, but rather merely the expectation of trading out of it? Can you take advantage of the leveraging situation without risking needing to actually pay for the stock - that is, if the stock moves into a profitable range, sell the option rather than exercise itand if not simply pay the premium.
Is it possible that you would decide to sell the option and not be able to?