Expert Chaslau Koniukh
  • Companies
  • Global investment
  • Investors
  • Terminology
  • Economy
  • Stock Market
  • World exchanges
  • Tech and Marketing
option contract
Market terminology

What are option contracts and their types?

24.12.2020
2 min read

What you need to know before writing an option contract

An option contract is a document that gives the right to purchase or sell a specific asset at a specified value and within a specified date. In this case, the subject of the auction is not the asset itself, but the right to sell or buy it. An option relates to securities and is considered a legally valid contract. There are several types of such document:

  • types. There are call and put options;
  • by asset type. In this case, operations with futures, various commodities or currency, also with shares of companies can be conducted;
  • styles: European, Asian or American options;
  • method of settlement: with or without the payment of the premium.

The Call option contract allows you to acquire an asset at a fixed cost over a specific period of time. This principle is similar to the long position principle that applies to shares. The contract is also called an option made to buy.
Thanks to Put, it is possible to dispose of an asset for a specified value within a specified period of time. It is reminiscent of the short position taken when dealing with shares.
It should be noted that the contract is not mandatory for use, its owner may not carry out the purchase or sale of the asset within a clear period of time.
The base asset affects the type of contract. A commodity allows you to buy/sell goods in a specified quantity at the option price, which must be used before the specified period.
The stock contract allows for transactions with ordinary shares of the company. With a currency option, the owner has the right to buy or sell the currency at a fixed value within a fixed period.
A futures option contract will allow you to buy or sell it in a certain month, when it will be delivered and with a specific asset.

option contract

Contracts have different styles. The US assumes that these contracts can be used any day before the end of the term.
With a European style document, the sale or purchase of an asset can only be carried out after a certain period of time. The execution date of the contract is usually specified in the terms and conditions.
The option, which refers to the Asian style, requires execution at an average price, which is calculated based on the data for the period while the document is valid.
In most cases, American-style option contracts are used to operate on an exchange, while European and Asian-style documents are non-exchange.
According to the differences in the type of settlement, options are divided into those with and without a premium. The former assumes a premium to the holder on the same day that the transaction was concluded.
Options that are exercised on an exchange must have a specification, which includes the requirements of a particular trading floor. Off-exchange options do not follow strict standardization, they can be prepared as convenient for participants.

Tags: Market terminology
0
Previous Post The oil war between Russia and Saudi Arabia: causes and impact on the world economy Next Post Agricultural Bank of China is one of the giants of the Chinese banking industry

You Might Also Like

The return on ordinary shares
Market terminology
What is the return on ordinary shares
02.06.2021
allonge
Market terminology
Allonge: a French term used in the financial sector
06.12.2022
Basis point description
Market terminology
Basis point: an overview of one of the basic concepts of finance
24.09.2022
junk bonds
Market terminology
Junk bonds: characteristics of securities with low credit ratings
02.02.2021
How to fill in the investment declaration
Market terminology
How to fill in the investment declaration: detailed instructions
14.11.2020
High-frequency trading has a number of disadvantages
Market terminology
High-frequency trading and its advantages for playing on the exchange
31.08.2022

Recent Posts

  • 1Apple Search
    Apple Corporation is working on its own search engine, Apple Search
    28.01.2023
  • 2Tom Ford brand
    Estee Lauder made a deal to buy the fashion brand Tom Ford
    27.01.2023
  • 3Golden Visa
    The Golden Visa program has brought Portugal more than 6 billion euros during its existence
    26.01.2023
  • 4Michael Steinhardt
    Michael Steinhardt: the story of a prominent American investor
    25.01.2023
  • 5Cessna
    The Cessna aircraft company: how it all began
    24.01.2023

Popular Posts

  • Field of activity of the American Monsanto Company Corporation
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Why the Federal Reserve System (FRS) refused to raise interest rates

Social media

Editor's Picks

Chaslau Koniukh
Analytics

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh
Analytics

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh
Analytics

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh
Analytics

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Latest Posts

Bybit
Cryptocurrency exchange Bybit provided information about the volume of stored assets
29.01.2023
Apple Search
Apple Corporation is working on its own search engine, Apple Search
28.01.2023
Tom Ford brand
Estee Lauder made a deal to buy the fashion brand Tom Ford
27.01.2023

Chaslau Koniukh

Expert Chaslau Koniukh

Chaslau Koniukh – an expert in marketing and project management, IT consulting, international investments, investor, financial analyst. A commodity trader, private consultant, entrepreneur, lecturer, author of several articles on the stock market.

Popular Posts

  • Field of activity of the American Monsanto Company Corporation
  • Skolkovo analysts: the Russian energy market is suffering losses
  • Businessman Chuck Feeney: the man who gave the world Duty Free
  • Why the Federal Reserve System (FRS) refused to raise interest rates
  • The success story of the company with the most expensive shares – Berkshire Hathaway Inc
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Instagram
  • Biography

Chaslau Koniukh – an expert in marketing and project management, international investments, financial analyst.

Social media

Menu

  • Biography
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Economy
  • Market terminology
  • Stock Market
  • World exchanges
  • Tech and Marketing
  • Analytics