InvestorQ : Are there some basic things I need to know about options when I am starting off?
Tisha Malhotra made post

Are there some basic things I need to know about options when I am starting off?

Answer
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Moii Chavate answered.
2 years ago


First and foremost, remember that an option is a right to buy or sell an asset at a fixed price and for a fixed expiry (maturity). A right to buy is known as a call option while the right to sell is a put option.

Secondly, what you need to know is that the buyer of the option (call or put) has to pay a premium for getting this right without obligation. This price of the (right without obligation) is called the option premium or option price. That is what you get to see on your trading terminal.

Last, but not the least; and this has lot of implications for your trading; Option prices have two components viz. intrinsic value and time value. While intrinsic value is the difference between market price and strike price, time value is the value you assign to the option based on time to expiry. This time value slowly moves towards zero as expiry nears.