HOW TO TRADE IN OPTION CALL & PUT

Definition of option

The right, but not the obligation, to buy or sell specific amount of a given stock,  index, at a specified price  during a specified period of time.

The price of the option depends on the price of the underlying, plus a risk premium.

Medium of exchange for options contracts allowing the holder the right to sell or buy an underlying commodity on an open market. The option contracts define the trading limitations of the market, including the option type and the expiration date.

Options are derivatives, which mean their value is derived from the value of an underlying investment. Most frequently the underlying investment on which an option is based is the equity shares in a publicly listed company. Options are traded on securities marketplaces among institutional investors, individual investors, and professional traders and trades can be for one contract or for many. Fractional contracts are not traded.

Participants in the options market buy and sell call and put options. Those who buy options are called holders. Sellers of options are called writers. Option holders are said to have long positions, and writers are said to have short positions. 

Types of option

In the special language of options, contracts fall into two categories - Calls and Puts. A Call represents the right of the holder to buy stock. A Put represents the right of the holder to sell stock.

	Calls	Puts
Buyers	Right to buy stock if exercised	Right to sell stock if exercised
Sellers	Obligation to sell stock if assigned	Obligation to buy stock if assigned

Call Options

A Call option is a contract that gives the buyer the right to buy 100 shares of an underlying equity at the strike price for a period of time. The seller of a Call option is obligated to sell the underlying equity if the Call buyer exercises his option to buy on or before the option expiration date.