Options are contracts where a buyer and seller place a price and trade an asset that will be delivered in the future. An option has an expiration date and on that particular date the seller has to deliver the asset when the investor exercises the option of physical delivery as a settlement.
On the other hand, the investor is not obliged to buy the asset at the end of the time period. This is how futures and options differ. Futures arecontract which is alike to options, but both parties are duty-bound to carry out the settlement at the expiration date.
Basic terminologies in options trading
What is a Call and Put?
Call: A call is the option that expresses to the owner the right to buy at the strike price.
Put: A put is the option that expresses to the owner to sell at a strike price. Here, the owner of the option might sell the option in a secondary market, in private as an over the counter deal or in an options exchange.
It is alike the equity market as the prediction of the rise and fall of the price of an option decides the trading of that option.
Long call: A long call is an approach when a trader anticipates the price of the option to rise; buys the call option at a strike price that is lower than his prediction.
Long put: Along put is an approach when the price is expected to drop and he buys a put option.
How to trade in Options?
1.Options are traded chiefly in exchanges and are carried out online like other stock trading
2.It can be traded in any of the exchanges like National Stock Exchange, Bombay Stock Exchange, Multi Commodity Exchange, etc.
3. The privately traded stock is unfettered and a modified deal can be brokered between the two private parties to suit the needs of both these parties.
4. An online option trading entails a trading account with an options brokerage.
5. Options are traded on assets that are commodities and not equities for the reason being the deliverance of said asset at the time of expiration.