2.

1– Decoding the basic jargons

In the previous chapter, we understood the basic call option structure. The idea of

the previous chapter was to capture a few essential ‘Call Option’ concepts such as –

1. It makes sense to be a buyer of a call option when you expect the underlying price

to increase

2. If the underlying price remains flat or goes down then the buyer of the call option

loses money

3. The money the buyer of the call option would lose is equivalent to the premium

(agreement fees) the buyer pays to the seller/writer of the call option.

In the next chapter i.e. Call Option (Part 2), we will attempt to understand the call

option in a bit more detail. However before we proceed further let us decode a few

basic option jargons. Discussing these jargons at this stage will not only strengthen

our learning, but will also make the forthcoming discussion on the options easier to

comprehend.

Here are a few jargons that we will look into –

1. Strike Price

2. Underlying Price

3. Exercising of an option contract

4. Option Expiry

5. Option Premium

6. Option Settlement

Do remember, since we have only looked at the basic structure of a call option, I

would encourage you to understand these jargons only with respect to the call

option.