InvestorQ : What exactly is an option and how does it work in practice?
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Crowny Pinto made post

What exactly is an option and how does it work in practice?

Answer
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2 years ago


Understanding about options is useful to an investor too. Most investors are wary of options as they consider them to be high risk products. That is not the case. Options are actually very useful when it comes to managing risk and for capitalizing on market volatility. Here are some basics you need to learn before you embark on options. Options are a right to buy or sell an asset without the obligation. Since it is a right without an obligation, you have to pay a premium to the seller of the option. A right to buy is called a call option while a right to sell is called a put option. When options trade in the market, the price of the option is nothing but the value of this “right without obligation”.