The Story Of Option Products
Introduction
Options are one of the most important financial derivative contracts. Derivative is a financial contract between two or more financial entities such that its value is calculated from the price of its underlying security.
Understanding Options Will Help Us Invest Our Money Better
Article Aim
In this article, I will outline:
- Option basics and characteristics
- Options types
- Factors that impact options price
- How to calculate pay off profiles
- Lastly it provides an overview of put call parity
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What Is An Option?
Think of an option as a contract that lets you, the option holder, buy or sell an asset without any obligation. It’s your choice if you want to exercise the option. The underlying asset of an option could be stocks, foreign currency or indexes (cash settled on indexes e.g. S&P) or interest rates or commodities or futures etc.
Option holder is usually a counterparty such as a bank or an exchange or broker etc.
