At a High Level , There are 3 financial products -
Owner Ship like Stocks
Loaner Ship like Bonds
Insurance like Derivatives (Options,Futures & Swaps)
By applying different permutations and combinations to the above financial products we arrive with new Financial Products.
Key Terms:
Options : Price Movement
Call(s) : Right to Buy Underlying Instrument at a specific price.
Put(s) : Right to Sell Underlying Instrument at a specific price.
Long : Buyer (Pays Premium therefore has the Right but not Obligation).
Short : Seller (Receives Premimum therefore Obligation to do)
There are 4 Positions.
Long the call option
In this case you are buying a contract that gives you the right to purchase an underlying on or before a future date at a predetermined ‘strike ’ price. You give up some money so that you can hold this right.
Short the call option
In this case you are the party that sells a contract which gives someone else the right to purchase (from you) an underlying on or before a future date at the strike price.
Long the put option
In this case you are buying a contract that gives you the right, but not the obligation, to sell an underlying on or before a future date at the strike price.
Short the put option
In this case you are selling to someone else a contract that gives them the right, but not the obligation, to sell an underlying (to you) on or before a future date at the strike price.
Call Option is like a Medical Insurance. If you expect Bullish or price goes above the strike price then go for Call Option. Example: As a person we pay the Premium to Insurance Company to transfer our risk to Insurance company there by If your cost goes above certain price then Insurance company pays the difference.
You Buy Insurance Premium (Insurer)
Put Option is like a Car Insurance. If you expect Bearish or price goes below the strike price then go for Put Option.
Example: As a person we pay the Premium to Insurance Company to transfer our risk to Insurance company there by If your car value goes below certain price then Insurance company pays the difference.
You buy Insurance Premium (Individual User)
You Sell Insurance Premium (Insurer) - Put Writer
Owner Ship like Stocks
Loaner Ship like Bonds
Insurance like Derivatives (Options,Futures & Swaps)
By applying different permutations and combinations to the above financial products we arrive with new Financial Products.
Key Terms:
Options : Price Movement
Call(s) : Right to Buy Underlying Instrument at a specific price.
Put(s) : Right to Sell Underlying Instrument at a specific price.
Long : Buyer (Pays Premium therefore has the Right but not Obligation).
Short : Seller (Receives Premimum therefore Obligation to do)
There are 4 Positions.
Long the call option
In this case you are buying a contract that gives you the right to purchase an underlying on or before a future date at a predetermined ‘strike ’ price. You give up some money so that you can hold this right.
Short the call option
In this case you are the party that sells a contract which gives someone else the right to purchase (from you) an underlying on or before a future date at the strike price.
Long the put option
In this case you are buying a contract that gives you the right, but not the obligation, to sell an underlying on or before a future date at the strike price.
Short the put option
In this case you are selling to someone else a contract that gives them the right, but not the obligation, to sell an underlying (to you) on or before a future date at the strike price.
Call Option is like a Medical Insurance. If you expect Bullish or price goes above the strike price then go for Call Option. Example: As a person we pay the Premium to Insurance Company to transfer our risk to Insurance company there by If your cost goes above certain price then Insurance company pays the difference.
You Buy Insurance Premium (Insurer)
You Sell Insurance Premium (Insurer) - Call Writer
Put Option is like a Car Insurance. If you expect Bearish or price goes below the strike price then go for Put Option.
Example: As a person we pay the Premium to Insurance Company to transfer our risk to Insurance company there by If your car value goes below certain price then Insurance company pays the difference.
You buy Insurance Premium (Individual User)
You Sell Insurance Premium (Insurer) - Put Writer
