Mina Mar Group

In short, option gives the buyer the right but not the obligation to buy or sell an underlying asset at a set price during the life of the contract. They are considered financial derivative namely derivative is a financial instrument with a price that is based on an underlying asset. In other words price of the option derives its value from the underlying assets that can be futures, commodities, currencies, securities or indexes. Usually they are purchased through online or retail broker. We will discuss stock options where underlying asset is stock. For example option on stock ABC gives option holder the right to buy or sell ABC stock at a strike price up until expiration date. In this case underlying asset is ABC stock because the price of the option is based on the stock price. Writing an option refers to investment contract in which fee is paid for the right to buy or sell shares at a predetermined future date. The fee paid depends on several factors like current price...