2. Types of Options
Types of Options
i. Call Option: The buyer of the call option has a right, but not an obligation, to buy a certain underlying asset within a specific time period, at a predetermined price, as stipulated in the option contract after paying the seller the premium. The seller of a call option contract is obliged to sell the underlying asset to the contract buyer according to the terms, including price and quantity, as stipulated in the contract if the buyer exercises the right.
ii. Put option: The buyer of the put option has a right, but not an obligation, to sell certain underlying asset within a specific time period, at a predetermined price, as stipulated in the option contract after paying the seller the premium. The seller of a put option contract is obliged to buy the underlying asset from the contract buyer according to the terms, including price and quantity, as stipulated in the option contract if it is exercised by the option buyer.
Class of Options
i. American option: An American option can be exercised at any time as prescribed by the contract, prior to the expiration date.
ii. European option: A European option is only allowed to be exercised on the expiration date prescribed by the contract.
Note: Most stock options are American options and most index options are European options.