CHAPTER 1
The Basics
To understand how options work, one needs first to understand what an option is. An option is a contract that gives its owner the right to buy or the right to sell a fixed quantity of an underlying security at a specific price within a certain time constraint. There are two types of options: calls and puts. A call gives the owner of the option the right to buy the underlying security. A put gives the owner of the option the right to sell the underlying security. As in any transaction, there are two parties to an option contract—a buyer and a seller.
Contractual Rights and Obligations
The option buyer is the party who owns the right inherent in the contract. The buyer is referred to as having a long position and may also be ...
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