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PPT : TYPES OF OPTION CONTRACTS

* WHAT IS AN OPTION?
o Definition: a type of contract between two investors where one grants the other the right to buy or sell a specific asset in the future
o the option buyer is buying the right to buy or sell the underlying asset at some future date
o the option writer is selling the right to buy or sell the underlying asset at some future date

CALL OPTIONS
* WHAT IS A CALL OPTION CONTRACT?
o DEFINITION: a legal contract that specifies four conditions
o FOUR CONDITIONS
+ the company whose shares can be bought
+ the number of shares that can be bought
+ the purchase price for the shares known as the exercise or strike price
+ the date when the right expires

CALL OPTIONS
* Role of Exchange
+ exchanges created the Options Clearing Corporation (CCC) to facilitate trading a standardized contract (100 shares/contract)
+ OCC helps buyers and writers to “close out” a position

PUT OPTIONS
* WHAT IS A PUT OPTION CONTRACT?
o DEFINITION: a legal contract that specifies four conditions
+ the company whose shares can be sold
+ the number of shares that can be sold
+ the selling price for those shares known as the exercise or strike price
+ the date the right expires

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Option Contract ppt

Tags: option contract, option contracts, options clearing corporation

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