Option is a financial derivative that establishes a contract between two which gives the right to the buyer of option to buy (call option) or sell (put option) a particular stock at a agreed upon price on a future date.
Some of the properties of stock options are
There are two types of options in stock market they are call option, put option. Call option gives the holder the right to buy the stock at the strike price in the particular date mentioned in the contract, whereas the put option gives the holder the right to sell at the strike price in the particular date mentioned in the contract.
The price of call option rises when the market moves upward, in other word the price of call option increases when the mood in market is bullish.
The price of the put option increases when the market is in down trend. The price of the put option increases when the mood in market is bearish.
Put call ratio are usually used to determine the mood of the market. It is useful for the investor when they want to make up whether the market is bearish or bullish.
The implementation of the contract lies in the hands of the buyer of the option. If the buyer of the option feels that he/she will gain by implementing the contract then the buyer will implement it, else the buyer can void the contract.
The premium paid during the buying of option will not be returned back even if the contract is not implemented.
The premium amount varies as according to the demand for the option in the market. Higher the demand for the option higher will be the premium amount.
When the market price is more than the strike price then the call option is said to be in the money.
When the market price is less than the strike price then the put option is said to be in the money.
The validity of the option contract expires along with the
The above are some of the properties of stock option. The risk involved in the option is less when compared with futures. The maximum loss in case of option is just the premium amount paid during the purchase of the contract.
