![]() ![]() Participants in Optionsġ.Buyer of an Option – The one who by paying the premium, buys the right to exercise his option on the seller/writer.Ģ. The regulator has also authorized the American style of settlement for such options. The contract gives the holder the right to buy or sell the underlying shares at the specified price. These are options on the individual stocks (with stock as the underlying). Examples of such options include Nifty options, Bank Nifty options, etc. In India, the regulators authorized the European style of settlement. These are the options that have an index as the underlying. Options can be used to hedge, take a view on the future direction of the market, for arbitrage, or for implementing strategies that could help in generating income for traders. These instruments provide settlement guaranteed by the clearing corporation, thereby reducing counterparty risk. Utility of the Exchange-Traded OptionsĮxchange-traded options constitute an important class of options that have standardized contract features and trade on public exchanges, facilitating the investors. ![]() In return for granting the option, the seller collects a payment (known as a premium) from the buyer. An option is a contract that is written by a seller that conveys to the buyer the right - but not an obligation to buy (for a call option) or to sell (for a put option) a particular asset, at a specific price (strike price/exercise price) in future. ![]()
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