Part 6 Learn Institutional Trading

Understanding Options

At its core, an option is a contract. There are two primary types of options:

Call Option – Grants the holder the right to buy an asset at a predetermined price (strike price) within a specific timeframe. Investors buy calls when they expect the underlying asset's price to rise.

Put Option – Grants the holder the right to sell an asset at a predetermined price within a specific timeframe. Investors buy puts when they anticipate a decline in the underlying asset’s price.

The strike price is the agreed-upon price at which the option can be exercised, while the expiry date determines the option’s lifespan. Options are traded on various underlying assets, including stocks, indices, commodities, and currencies.