Basics About Options Part - I

All About Options (Education Series)

Options can be categorised in 2 types:-

Call Option (CE)

Put Option (PE)

As Buyer of Option.

Call Option Buyer undergoes limited risk (upto extend to his payment which he has already made) of option. Holder of Call Option expects prices of underlying asset must go up on or before expiry of such contract.

Expectations of CE buyer:-Volatile or Bullish market so that prices may move in his favour.

Assumption of CE Buyer:- Volatility may increase or Prices of underlying asset may go up.

Put Option Buyer undergoes limited risk (upto extend to his payment which he has already made) of option. Holder of Put Option expects prices of underlying asset must go down on or before expiry of such contract.

Expectations of PE buyer:-Volatile or Bearish market so that prices may move in his favour.

Assumption of PE Buyer:- Volatility may increase or Prices of underlying asset may go down.

As Writer of Option.

Call Option Seller/Writer undergoes unlimited risk (upto extend to his payment to be made in future) of option. Seller/writer expects Call Option expects prices of underlying asset must to go down or remain flat (but below strike price of contract) of underlying asset on or before expiry of such contract.

Expectation of CE Seller/Writer:-Range-Bound or Bearish market so that prices may not go above strike price of traded option contract.

Assumption of CE Seller/Writer:- Prices of underlying asset may remain range bound or may go down.

Put Option Seller/Writer undergoes  unlimited risk (upto extend to his payment to be made in future) of option. Seller/writer expects prices of underlying asset must to go up or remain flat (but above strike price of contract) of underlying asset on or before expiry of such contract.

Expectation of PE Seller/Writer:-Range-Bound or Bullish market so that prices may not go below strike price of traded option contract.

Assumption of PE Seller/Writer:- Prices of underlying asset may remain range bound or may go up. 

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