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Introduction to Derivatives
Options Basics
What are options?
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What are options?
An option gives the the holder the choice to buy or sell a particular asset at a specified price (the strike price) at a certain point in time. There are two kinds of options, calls and puts. Calls allow the holder to lock in a price at which to buy the stock. Puts allow the holder to lock in the selling price. You buy Calls when you think the stock will go up, and you buy Puts when you think it’ll go down. Options also have an expiration date on which you decide if you want to exercise your option or not.
Options can have many different strike prices, and many expiries, giving traders a variety of potential hedging and payoff solutions.
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