Essay: Types of options in options trading

Sample Essay

Whenever there is a transaction of either buying or selling, but in this sense the transaction relating to option is referred to as writing the options contract. In regard to option trading, there are two types of options: cal option and put option.

Call options

Under the call options, the contract gives the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date (John, Mark, 1998, p.482). Empirically call option can be demonstrated in the following example, if we assume that IBM limited company shares have a last sale price of $ 12.00, and then an available 3 month option would be an IBM 3 month $12.00 call. As an implication, the taker into the contract has the right, but not the obligation, to buy 1,000 IMB shares for a price of $12.00 per share at any time until the expiry of the 3 months period, after the expiry date the right for the taker is invalid. In this transaction the taker pays IBM purchase price or a premium.

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