An option is a contract that gives the owners the right, but
not the compulsion to buy or sell a particular asset before its specific date.
An option is just an security aspect which includes stock and bonds. Its an
agreed contract with certain terms and condition mentioned in it.
Still Not clear?? Just look at these example, You want to
purchase a expensive new house but you don’t have sufficient money to purchase
it for another two months, now you contact the dealer to provide an option to
buy that house in two months for a price of $200,000, the dealer will agree and
now for this option you have to pay $3000.People who purchase an option are
called holders and those who sold option are called writers.
Now option
trading can be done in two ways
1 Call Option - A call gives an authority to holder
to buy assets with certain price during a particular period of time with the hope
of increase in price of the stock before option expires. Trading in Calls has
long term position.
2 Put Option - Put gives the right to sell an asset with certain price during a fixed
period of time, puts can hold the stock position for short position
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