We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- It makes sense to buy a call option only when one anticipates an increase in the price of an asset
- The strike price is the anchor price at which both the option buyer and option writer enter into an agreement
- The underlying price is simply the spot price of the asset
- Exercising an option contract is the act of claiming your right to buy the options contract at the end of the expiry
- Similar to futures contracts, options contracts also have an expiry. Options contracts expire on the last Thursday of every month
- Options contracts have different expiries – the current month, mid-month, and far month contracts
- Premiums are not fixed, in fact, they vary based on several factors that act upon it
- Options are cash-settled in India.