Options

Option is a financial derivative that gives the buyer the right, but not a obligation , to buy or sell a security for an agreed price on or before a specific date or period.
    In order to get a right in Option,the buyer has to pay Option premium to the Seller of Option.
 There are two types of options. They are Call Option and Put Option.
    Call Option gives the buyer of option the right to buy a security at agreed  price or strike price on or before a specific date without any obligation to buy.
   For example Rakesh bought a Call Option with strike price of RS 100 for 3 months.
 Case (I):-  After 1 month, market price of share is 180, then the Rakesh buy share at RS 100 through Option and Sell the same share in the market for RS 180. Rakesh profits here is RS 80 (180-100).
 Case (ii) :- After 1 month , market price of share is Rs70, then the Rakesh will not buy the share through the option because he gets loss by buying a share at RS 100  and selling at RS 70.
     In this case he losses only Option premium.
   In Call Option ,he has the choice to buy or not to buy. He has right but not obligation to buy a security.
 Put Option gives the buyer of option the right,but not a obligation, to sell a security for an agreed price on or before a specific date or period.