The term ‘option’ refers to a financial instrument that is based on the value of underlying securities such as stocks and indexes. Each contract will have a specific expiration date by which the holder must exercise their option. The stated price on an option is known as the strike price.
The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price).
Long Call option' is the most basic & simplest strategy. It is implemented when we expect the underlying asset to show significant upside move i.e., this is a directional strategy where we are bullish on the market direction.Buying a Call or Long
Call is the same as future but capped with downside risk and requires less margin for implementation.
Short Call option is a simple but risky strategy & hence qualified as an advanced strategy. Short Call or Selling Call is recommended when the price of the underlying asset is expected to fall & the stock is not expected to rise further or remain sideways. Generally, we expect the price to stay below the sold strike price.
Put option is a derivative contract between two parties. The buyer of the put option earns a right (it is not an obligation) to exercise his option to sell a particular asset to the put option seller for a stipulated period of time.
Long Put option' is again the most basic & simplest strategy among all. It is recommended or implemented when we expect the underlying asset to show significant downside move in near term i.e., this is directional strategy where we are bearish on the market direction. Buying a Put
or Long Put is the same as the future but capped with upside risk and requires less margin for implementation.
Short Put option is a simple but risky strategy & hence qualified as an advanced strategy. Short Put or Selling Put is recommended when the price of the underlying asset is expected to rise & the stock is not expected to fall further and remain sideways. Generally, we expect the price to stay above the sold strike price.