Understanding Options - by Martin Chandra

Understanding Options - by Martin Chandra: "Options are one of the oldest trading vehicles man has ever used. Around a 1000 B.C Aristotle Thales predicted by the stars that there would be a bumper olive harvest and bought options on the use of olive presses.

When the harvest did in fact prove to be a great harvest Thales was able to rent the presses at a significant profit.

When you buy an option you have the right but not the obligation to buy (call) or sell (put) a specific underlying asset at a prearranged price on or before a given date.

Similar to futures, options can give the holder protection against adverse price moves.

Call options when bought allow you to buy an asset at a fixed price (strike price) on or before a specific exercise date.

Exercise date: some options can only be exercised on a particular date and they are commonly know as European options. Options that can be exercised on or before the due date are commonly known as American options).

A Put options is the reverse of the call option. When you buy a put option it gives you the right but not the obligation to sell an underlying asset at a predetermined date."