Call option and put option

Let's start with history, illustrating the nature of the option.

Someone dreamed of a site by the ocean.This section - the goods are not only expensive, but also rare.Getting on land markets, he instantly finds a buyer.Somebody once, passing near the shore, I noticed a man walking freely on the beach.Deciding that it is - the owner, Somebody asked him to sell him the land.The man agreed, voicing the price: one million euro.Convinced that man really liked the owner of the land, it became Somebody once inclined to deal.Named for the amount of the product was low, Someone knew it, but recognized the man in this was not going to, because the land does cost more, but the real cost estimate had to spend time.Someone then suggested: "I leave you with 10,000 euros in exchange for a receipt, which will give me the right to purchase the land for a million euros a month. If I do not bring one million euros during this time, the money you leave yourself."The man agreed.

evening Somebody talked about buying land for people looking for the coastal area to start a business.As a result, the site was sold at 400% more expensive.Someone was able to earn a large sum on goods that do not even owned.

this transaction could be completed because:

1. Somebody has got to the ground, using their right for a month, and sold (resold) to her again, expending additional resources on registration, re-registration, taxes, etc.

2. Someone could sell a receipt (right to buy), earning 400% of net income.

3. Someone could not take advantage of the right to buy at all and lose his 10,000 euros.

We have come to the concept of "options".What is it?In this case, this is just the very right to purchase land for a specified in the thirty days of receipt.This right (in the form of receipts) has itself become a commodity product and independent.In other words, what is purchased, and may be sold.Actually, this is - the nature of the call options.

Call option - the right to buy the underlying asset at a pre-determined price.Let us return to the story.Someone paid the man ten thousand euros for the right to purchase land for a month, therefore, a call option in this case is worth 10,000 euros.

For options exist expiration date.In the above stories - 30 days.Then, the option will not be worth a dime.Therefore, you need to call an auction to fulfill until the specified date, or to sell.

This also applies to shares.You are free to buy the shares, using the call option or sell a stock option is the right to exchange.Usually buyers do not go on options costs and hassle associated with the execution of purchased options as the main character of our story.After all, the purpose of the transaction - the resale and income.

By the way, there are "upside down" call options - option-bonds.

options - a new dimension in the movements of the market, but because they are difficult to rapid development.Suppose there are two shares reserve: buy (long position) and sell (short position).The positions of these - are mutually exclusive: either long or short.But with multiple options possible action, but it's clearly not for lazy minds, afraid of the complexity of options trading.

So call option could be, as well as a put option, and bought and sold.And here you can simultaneously stay in four positions with respect to one asset (optional spreads).

put option can be illustrated by an insurance policy.By purchasing it, you want to insure, for example, real estate.If this is an insurance policy on the house, then, in fact, you have bought the right to sell home insurance company at the N-tion price, regardless of what happens in the future.But the right to act in specific, concrete and specific conditions, certain times.Taking money for the insurance company undertakes to, if necessary, to redeem you this house.The larger you define the term of the policy, the more money the insurance company will require, because of longer periods of time greater risk and uncertainty.Similarly, in a put option: the expiry dates above, so they are more expensive.But the terms of the insurance policy is being heralded, but in no such options.There's enough to fall below the prices of the underlying asset strike.In addition, stock markets put options can be sold to anyone, anytime, and an insurance policy - not.

options as you know, are a commodity.For investors who are accustomed to a state of risk and return, it's a great tool.It is because of option trading (and only she) is possible to increase the effect of the movements of the underlying assets without increasing the risk.For those who are far from options trading and I am sure that most of the profit associated with huge risks and large losses, this statement is illogical.But the options are really given the chance to receive the highest possible return at a good price movement, as their purchase involves a disproportionately lower costs and risk - the minimum.You can earn only if the correct calculation of asset growth.