Part 3 Institutional Trading

1. What Are Options?
1.1 Definition
An option is a financial derivative contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) on or before a specified date (expiry).
Call Option: Right to buy.
Put Option: Right to sell.
The buyer of an option pays a premium to the seller (writer) for acquiring this right.
1.2 Underlying Assets
Options can be written on:
Equities (stocks)
Indices (Nifty, S&P 500, etc.)
Commodities (gold, crude oil)
Currencies (USD/INR, EUR/USD)
Interest rates & bonds
This wide range makes them versatile instruments for trading and hedging.