What is an Option?

[DON-a-Duck]

I want to know that what is an option means for? Is option is the right to acquire or sell the fundamental commodity during a particular future time at a determined price. The price or cost of an alternative is called a "premium". I have come through some points which establish an option's value that are Price of the underlying, Time to Expiry, Strike of the option and Volatility of the underlying is it true or do you have any other information related to an option.

[G-MAT]

Option is a legal agreement in which the author of the contract grants to the purchaser, the right to acquisition from or to sell to the author a nominated instrument or scrip at a particular price within a particular period of instance. The right to purchase a particular collection is called the call option, while the right to put on the market to a particular stock is called a put option. You can go through this option suppose a author of an option write a agreement, which conveys or grants to the purchaser the right to buy hundred shares of ITC from him, i.e. from the author at the price of Rs.650 one share. This option is known as a call option and is nominated as hundred ITC 650 calls. Correspondingly, if an author writes an option which allowance to the purchaser the right to sell to the writer hundred shares of ITC at Rs.650 one share, this option is called a put option and is nominated as hundred ITC 650 put. It should be distinguished that in a call option operation, there is not put option concerned. The author is writing or selling a call option and the purchaser is purchasing a call option. Equally, in the case of a put option operation there is no call option occupied. The author is inscription or advertising a put option and the purchaser is purchasing a put option.

[Job-finder]

Options are financial mechanisms that can supply you with the flexibility you require in almost every investment circumstances you might come across. Options give you facility by giving you the capability to tailor your location to your own position.

• You can defend stock holdings from a turn down in the market value.
• You can enhance income in opposition to the current stock assets.
• You can get ready to purchase stock at a inferior charge.
• You can easily point yourself for a large market move even when you do not be familiar with which technique the value will budge.
• You can profit from a stock prices increase or fall without including incurring the price of buying the stock complete.

[Zimic]

I want to explain you by this example. The current price of ANSAR InfoTech Ltd stock is Rs.45/- per share, and investor 'Rafique' imagine that it will go up considerably. Rafique purchases a call contract for 100 shares of ANSAR InfoTech Ltd from 'Aqueel,' who is the call seller. The hit price for the agreement is Rs.50/- per share, and Rafique pays a quality upfront of Rs.5/- per share, or Rs.500/- entirety. If ANSAR InfoTech Ltd does not go up, and Rafique does not work out the contract, then Rafique has lost Rs.500/-. However, ANSAR InfoTech Ltd. stock does go up -- to Rs.60/- per share before the contract is expired. Rafique exercises the call by buying 100 shares of ANSAR from Aqueel, for a total of Rs.5,000/-. Rafique sells the stock in the market, at a total price of Rs.6,000/-. Rafique has paid an Rs.500/- contract premium plus a stock cost of Rs.5000/-, for a total of Rs.5500/-. Rafique has earned back Rs.6000/-, for a net profit of Rs.500/-. Aqueel, however, did not do so well. Aqueel did not already own ANSAR InfoTech Ltd stock, so when Rafique exercised the contract Aqueel had to buy the stock on the open market, at Rs.6000/-. Aqueel had already earned the Rs.500/- premium for the contract and Rs.5000/- from Rafique on selling the stock, so the total loss for Aqueel was Rs.500/-