Options trading is a type of derivative trading where its price is intrinsically linked to an underlying stock. A stock buyer holds the right, but not the obligation, to buy/sell 100 shares of a stock at a premium from/to a seller within a fixed time period.
Strike price is also also known as exercise – the price at which the underlying stock can be bought or sold. Once again, options trading is contracts based and hence, a buyer or seller should be well aware of the contract expiry date. Please note that, in India, options expire on the last Thursday of every month.
Premium is the price an options buyer pays to a seller to reserve the rights to sell the underlying at the strike price before the contract expires. The same holds true for the relationship between sellers and buyers.
Month of Expiry
The option contract will expire on the last Thursday of the said month. Before the expiry ends, buyers and sellers are required to settle their contracts.
The underlying asset of an option can be anything from stocks to currency to commodity. The price of an option is intrinscally derived from the price of its underlying asset.
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