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Option Trading Issue |
Option is the right with no obligation to sell or buy an asset at a
given price on or before a specified date. The basis of any underlying
asset is option. The latter term is more accurate, because it does not
matter what kind of asset, share, futures, index or even an option,
this term refers to any asset.
The cost of the option, or the price in the commodity option trading is
called a premium, it is the same in the online option trading and
futures option trading. In practice the use of all these terms should
take into account their complete equivalence in the context of stock
option trading. All rights and obligations are limited by the duration
of the contract, or the time of expiration in all option trading
strategies. The exact date of expiry of the currency option trading is
defined as the date of expiry.
Strike price is the price at which the right option holder will be
performed and it will have the opportunity to purchase or sell the
asset of the contract of option. It can be calculated with option
trading software. Simply put, it is the option price asset on which you
can buy or sell it. Index option trading can be used to clarify the
prices.
The critical fact is that after the expiration of the option it loses
its value, if not executed. In other words, the premium or cost will be
zero. This is equally true for both the executable options, and those
that were not executed. Just in case, when the option is executed, the
holder of an option changes options positions to the position with cash
assets. That is, he or she buys or sells a financial instrument
underlying the option. Thus, the option value is transformed into
exchange gains on the underlying asset. The main difference between
options is that they have different conditions for the execution of
sentences. Because of the influence of such factors as the lifetime of
the option contract, the costs of European and American options are
different. European option can be exercised within a very limited
period of time in the "area" of the expiry date of the option.
Formally, it is believed to be the day which is defined as the date of
execution of option contracts. However, the practice of placing orders
and reconciliation procedure determine a wider border which
nevertheless falls within a certain number of hours.
An American option can be exercised at any time before the expiration
of the option. For such a response option is determined solely by the
rules that apply to the current time on the timing of delivery of the
asset. There may also be limitations in the number of option contracts
executed during one trading day. Options are divided into two types: a
call option and a put option.
Call option gives a right to purchase which means the right of the
holder to buy an option given price on or a before specified date
(American option) or a specific date (European option). Put option is a
right to sell, which means the right of a holder to sell the instrument
underlying the option at a specified price at any time before the
expiry date (American option) or a specific date (European option). |
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