An option is a derivative contract that gives the owner the right but no obligation to buy or sell an

asset (called the underlying asset) at a predetermined price within a given time frame
TERMI !"!#$ !% !&TI! ' Call option( An option to )*$ the underlying asset at a predetermined price within a specified

interval of time is called a +A"" option,

Put option( An option to 'E"" the underlying asset at a predetermined price within a specified

interval of time is called a &*T option,

Buyer or holder( The person who obtains the right to buy or sell but no obligation to perform is

called the owner-holder of the option,

Writer or seller: one who confers the right to the holder is called seller-writer of an option, To

confer this right the seller charges a premium,

Premium: .hile conferring a right to the holder/ who is under no obligation to perform/ the writer is entitled to charge a fee upfront called the premium, This is paid by the holder to the writer and is also called the price of the option
Strike price: The predetermined price at the time of buying-writing an option at which it can be

e0ercised is called the stri1e price or e0ercise price,

Expiry date/Maturity date: The right to e0ercise the option is valid for a limited time, The latest

time when the option can be e0ercised is called the time to maturity

+A"" !&TI!
Right to BU !bligation to SE!!

&*T !&TI!
The right to SE!! The obligation to BU

T$&E' !% !&TI! ' 2epending on the type of payoff

3,

In4the4money( !ptions which if e0ercised would result in positive cash flow to the holder, !ut4of4the4money( !ptions which if e0ercised would result in cash outflow to the holder,

5,

6,

At4the4money( o cash flow

2epending on the style of e0ercise

3,

American option( can be e0ercised anytime during the life of the contract

5, 6,

European option( can be e0ercised only on the e0piry date of the option )ermudan option( can be e0ercised on few specific dates prior to e0piry

+*RRE +$ !&TI! ' The currency options are derivative contracts that grant the purchaser the right but not the obligation to trade a currency futures contract at a predetermined date in the future at a prearranged price (stri1e price)/ regardless of where the underlying mar1et is trading,