Investment knowledge: Derivatives

1. Options

An option is a contract applied to a certain security with defined quantity and price for a defined period of time

option can be call option or put option, and there are option holder and option writer;

Four scenarios:

holder of a call option -> has the right to buy a certain security for certain price at certain time
writer of a call option -> obliged to sell a certain security for certain price at certain time
holder of a put option -> has the right to sell a certain security for certain price at certain time
writer of a put option -> obliged to buy a certain security for certain price at certain time

The holder of either the call or put option pays a "premium" for the right, and the writer of the call or put option receives the "premium".

To be "long" on either call or put option is to own the call or put option (holder)
To be "short" on either call or put option is to sell the call or put option(writer)