CALL AND PUT OPTIONS An option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction.

1. Call and Put
OPTIONS
BY SAJNA FATHIMA

2. • An option is a derivative financial instrument
that specifies a contract between two parties for
a future transaction on an asset at a reference
price.
• The buyer of the option gains the right, but not
the obligation, to engage in that transaction,
while the seller incurs the corresponding
obligation to fulfill the transaction.
Options

3. Option Classifications
• Call Option : an option which gives a right
to buy the underlying asset at a strike
price.
• Put Option : an option which gives a right
to sell the underlying asset at strike price.

4. • Call Option: Right but not the obligation to buy
• Put Option: Right but not the obligation to sell
• Option Price: The amount per share that an option
buyer pays to the seller
• Expiration Date: The day on which an option is no
longer valid
• Strike Price: The reference price at which the underlying
may be traded
• Long Position: Buyer of an option assumes long
position
• Short Position: Seller of an option assumes short
position
Some Terminologies

5. • Both the Call and Put option buyers are
buying the rights, that is they are
transferring their risks to the sellers of
the option.
• For this transfer of risk to the sellers,
buyers have to compensate by paying
Option Premium.
• Option premium is also known as Price of
the option, Cost or Value of the option.

6. CALL OPTION
• A call option is a financial contract between two
parties, the buyer and the seller of this type of
option.
• It is the option to buy shares of stock at a
specified time in the future.
• Often it is simply labelled a "call".
• The buyer of the option has the right, but not
the obligation to buy an agreed quantity of a
particular commodity
• The buyer pays a fee (called a premium) for this
right.

7. • Put Option is just opposite of the Call Option
which gives the holder the right to buy shares.
• A put becomes more valuable as the price of
the underlying stock depreciates relative to the
strike price.
PUT OPTIONS

8. Call Option Buying
A Call option buyer basically is bullish about
the underlying stock.

9. Put Option buying
• A buyer of put option is bearish on
underlying stock.

10. Exercise of calls

11. Exercise of Puts

12. Summary of basic option
strategies

13. Merits of Options
• Options protect downside risk to the buyer
• The buyer of the option limits losses to the
premium paid on the purchase of the options
• Eg. If I buy a nifty 2900 put at Rs 34, my loss is
limited to Rs 34 while gain potential is
limitless
• If the price goes above Rs 2900 I do not
exercise the option limiting my loss to the
premium paid.

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