What Are options ?

There are Two options available in share market:

1) Call Option.
2) Put Option.

This is in continuation of my last article on derivatives.

An option is nothing but a Right Given to the Holder of the Option. It may be a Right to Sell Or Right to Buy. The right to sell option is called a put option and right to buy option is called as call option.

When a person buys an option note only the right is transferred. Then the question arises how a seller can make profit out of it even if it is not executed on the maturity date. The buyer of the option has to necessarily pay a premium called option premium for buying that option. The buyer can buy a put option or a call option. The simple logic is a buyer who expects a price rise will buy a put option for a price determined today and a buyer who expects price fall will buy a call option. Call and put options are there in stocks, commodities etc.