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Key Financial Market Concepts, 2nd Edition by Bob Steiner

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Calls and Puts

Definition

A call option is a deal giving one party the right, without the obligation, to buy an agreed amount of a particular instrument or commodity, at an agreed rate, on or before an agreed future date. The other party has the obligation to sell if so requested by the first party.

A put option is a deal giving one party the right, without the obligation, to sell an agreed amount of a particular instrument or commodity, at an agreed rate, on or before an agreed future date. The other party has the obligation to buy if so requested by the first party.

How are they used?

An option is one-sided. For one of the two parties, it is similar to a forward deal but with the difference that he can always choose whether or not to fulfil ...

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