Buying And Selling Options
Options are the right to either buy or sell a specific amount or value of a particular interest at a fixed price by exercising the option before its specified expiration date. An option that gives the right to buy is called a call option and the option that gives the right to sell is called a put option. There are two very distinct types of options and buying or selling of one type does not involve the option.
There are two different types of options: physical delivery of a physical product and a cash settled option. A physical delivery gives the owner the right to receive delivery (if it is a call option) or to deliver (if it is a put option) of the interest when the option is exercised. A cash option gives the owner the right to receive a cash payment on the difference between a determined value and the fixed exercise price of the option.
A cash-settled call option is the right to receive a cash payment if the determined interest exceeds the exercise price of the option and a cash-settled put is the right to receive cash payment if the exercise settlement value is less than the exercise price of the option.
Most options have standard terms like the nature and amount of the interest, the expiration date, exercise price, if the option is a call or a put and whether the option is a physical delivery option or a cash-settled option. In addition to these most have other terms such as the manner in which cash payment and exercise settlement value of a cash-settled opt is determined, the multiplier of a cash-settled option, the style of the option and whether the option has automatic or adjusted exercise provisions.
Sometimes option of the same series can be traded on more than one options market at the same time. Options traded in this manner are called multiply-traded options. These types of options can be traded in both a U.S. options market and a foreign options market. They are referred to as internationally-traded options.
Multiply-traded and internationally-traded options can be purchased and written. The positions in these options can be liquidated in offsetting closing transactions in any of the options markets. Because premiums are affected by the market forces, the premiums for identical multiply-traded or internationally-traded options may not be the same in all markets
Options are usually traded on U.S. options markets during a normal business days hours of the U.S. securities exchanges for a short period afterward. However, trading options do not always have to be confined to these hours.
Trading in the evening and night trading sessions occurs more frequently in options on foreign currencies and can occur in other types of options as well. When there are abnormal market conditions, an options market may authorize trading to continue for a longer period of time than if the market had normal conditions. Expiring options may close at an earlier time than trading in other options.
The option holder is the individual who buys the right that is conveyed by the option. The option writer is obligated to perform according to the terms of the option if and when assigned to an exercise. An option writer who has been assigned an exercise is called an assigned writer.
No certificates are issued to prove options. Investors look at the information received from their brokerage firms to prove options holders or writers. Even though an option holder should always make sure that action is taken to exercise options, capped options and some cash-settled options provide the option holder the ability for automatic exercise in certain circumstances. The information on these types of automatic exercise circumstances can be obtained from your brokerage firm.
Rules of the options markets limit the total number of puts or calls that a single investor or group of investors can exercise during a specified time period. Information concerning these limits for particular options is available through your brokerage firm or the options market in which the options are traded. Furthermore, the right to exercise an option may be restricted under certain circumstances.
There are two different types of options: physical delivery of a physical product and a cash settled option. A physical delivery gives the owner the right to receive delivery (if it is a call option) or to deliver (if it is a put option) of the interest when the option is exercised. A cash option gives the owner the right to receive a cash payment on the difference between a determined value and the fixed exercise price of the option.
A cash-settled call option is the right to receive a cash payment if the determined interest exceeds the exercise price of the option and a cash-settled put is the right to receive cash payment if the exercise settlement value is less than the exercise price of the option.
Most options have standard terms like the nature and amount of the interest, the expiration date, exercise price, if the option is a call or a put and whether the option is a physical delivery option or a cash-settled option. In addition to these most have other terms such as the manner in which cash payment and exercise settlement value of a cash-settled opt is determined, the multiplier of a cash-settled option, the style of the option and whether the option has automatic or adjusted exercise provisions.
Sometimes option of the same series can be traded on more than one options market at the same time. Options traded in this manner are called multiply-traded options. These types of options can be traded in both a U.S. options market and a foreign options market. They are referred to as internationally-traded options.
Multiply-traded and internationally-traded options can be purchased and written. The positions in these options can be liquidated in offsetting closing transactions in any of the options markets. Because premiums are affected by the market forces, the premiums for identical multiply-traded or internationally-traded options may not be the same in all markets
Options are usually traded on U.S. options markets during a normal business days hours of the U.S. securities exchanges for a short period afterward. However, trading options do not always have to be confined to these hours.
Trading in the evening and night trading sessions occurs more frequently in options on foreign currencies and can occur in other types of options as well. When there are abnormal market conditions, an options market may authorize trading to continue for a longer period of time than if the market had normal conditions. Expiring options may close at an earlier time than trading in other options.
The option holder is the individual who buys the right that is conveyed by the option. The option writer is obligated to perform according to the terms of the option if and when assigned to an exercise. An option writer who has been assigned an exercise is called an assigned writer.
No certificates are issued to prove options. Investors look at the information received from their brokerage firms to prove options holders or writers. Even though an option holder should always make sure that action is taken to exercise options, capped options and some cash-settled options provide the option holder the ability for automatic exercise in certain circumstances. The information on these types of automatic exercise circumstances can be obtained from your brokerage firm.
Rules of the options markets limit the total number of puts or calls that a single investor or group of investors can exercise during a specified time period. Information concerning these limits for particular options is available through your brokerage firm or the options market in which the options are traded. Furthermore, the right to exercise an option may be restricted under certain circumstances.