Options

Presented by-
Shreyash Satam
Nishant Chaudhary
 Introduction
• Type of derivative product
• Giving right to the buyer (no obligation)
• To Buy an asset(Call)
• To Sell an asset(Put)
• Over a certain date (Expiration)
• For a specified price (Strike)
 Types of options

Call Put
• To buy the asset, • To buy the asset,
stock or other No obligation of the stock or other
financial stock. financial
instrument instrument
• Denoted by CE • Denoted by PE
 Uses of Options
Hedging Arbitrage
Investment in counter Taking advantage of
options for reduction in difference in price in two
risk and selling of assets exchanges to make profit on
at a satisfactory profit. the difference in price.
 Spot Price
The current market price of a
particular asset on the
exchange.
Components of Strike Price
The fixed price at which the
Option investor can buy or sell the
underlying option.

Option Premium
The current market price of
the option at which the
investor buys/sells the option
of a strike price.
 At the money (ATM)
When the strike price of the option is
same as the current market price of the
asset.

Types of In the Money (ITM)

When the strike price of the call
Option option is below the current market
price of the asset and vice versa for
Contracts the put option.
Out of the Money(OTM)
When the strike price of the call
option is above the current market
price of the asset and vice versa
for put option.
 Type of Option In – the- Money At – the – Money Out – of the – Money
Contract (ITM) (ATM) (OTM)

Call Option Spot > Strike Spot = Strike Spot < Strike

Put
Spot < Strike Spot = Strike Spot > Strike
Option
 Theta Decay
• Theta refers to the rate at which the value of an
option declines over time.
• An option will lose value as it passes time toward its
expiration date.
• Theta is usually expressed as a negative number for
long positions, and positive number for short
positions.
 Option Strategies
• Buying a call option : This is done when the market view is bullish. This is
known as long call.
• Selling a call option : This is done when the market view is bearish. This is
known as short call.
• Buying a put option : This is done when the market view is bearish. This is
known as long put.
• Selling a put option : This is done when the market view is bullish. This is
known as short put.
Strategy Market Trend Profit Loss

Long Call Bullish Unlimited Limited

Short Call Bearish Limited Unlimited

Long Put Bearish Unlimited Limited

Short Put Bullish Limited Unlimited

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