Options

Options are the contracts which give a right, but not the obligation to buy or sell a certain asset on, or before the option's expiration time, at an agreed price (strike price).

The rights to sell and buy belong to investor, who has bought the option (buyer, holder). Respectively the obligation to act as a contractor is laid on the investor who is selling the options - options' seller (seller, writer).

The options price is a payment for a right to buy and sell the underlying asset in the future.

The options seller, after he is paid the premium, gives his agreement for contract's conditions fulfilling, which are different for "put" and "call" options.

So the options' seller is obliged to sell the underlying asset in case you want it.

If the buyer chooses to exercise the right to buy or sell the asset it is called exercising the option.

Put options exercise means that the buyer is obliged to buy the underlying asset at the price fixed in the contract.

Options types.

Depending on the buyer's actions with the underlying asset:

-whether the option holder has the right to buy it's called a call option.

-whether the option holder has the right to sell it's called put option.

Depending on the options' execution terms:

-European option - an option that may only be exercised on expiration.

-American option - an option that may be exercised on any trading day on or before expiration.

-Bermudan option - an option that may be exercised only on specified dates on or before expiration.

-Barrier option - any option with the general characteristic that the underlying security's price must pass a certain lever or "barrier" before it can be exercised

-Exotic option - any of a broad category of options that may include complex financial structures.[6]

-Vanilla option - by definition, any option that is not exotic.

Depending on the underlying assets market:

Foreign currency option (Currency option; Option of exchange) - options giving a right to buy or sell of a certain amount of foreign currency at a certain price during a certain time period.

Stock option - the options based on the common corporate equities.

Commodity option - the options giving the right to buy and sell a certain amount of commodities at a strike price.

Index option - stock index option provides the right to trade a specific stock index at a specified price by a specified expiration date

Interest rate option - is a derivative where the underlying asset is the right to pay or receive a (usually notional) amount of money at a given interest rate.

Options on physicals - interest rate options on fixed income.

Futures option (Option of futures contract) - options giving a right to buy or sell the futures contract on fixed delivery month and a certain underlying asset. Generally base futures contract expires after the options expiration date.

From a traditional investor point of view the options is the investment with restricted, known beforehand risk.

So the option price for the buyer is the very risk, or correctly to say risk avoidance payment.

Options market is considered to be the most complicated, uncontrolled and wrapped segment of fond and currency markets.

As far as the options are a financial derivative, its price is derivative from another financial tool price. As an instrument, laid in the options basis, one can mention stock and bond, currency, interest rates, market indices, commodities and financial derivatives (for ex. futures contracts).