Options: A Promise To Investors' Rights

Options are contracts giving the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset (a security) at a specific price on or before a certain date. Options differ from future contracts by requiring a premium that shall be paid in addition to the price of the financial instrument.

How Options are Executed?

The trading of options is conducted by floor brokers (execute transactions desired by investors) and by market makers (execute transactions for customers and for their own account). These transactions and the amount of the premium are traded through some expectations that change according to the following factors. 1. The market price of the underlying instrument, 2. the volatility of the underlying instrument, and 3. the time to maturity of the call option. Options' trading seems intimidating to many investors because they are relatively new and complex instruments to which investors are rarely familiar with. But, the truth is, the key to trading these securities is knowledge.

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