What this unit covers
Understand the three numbers that define every option contract, the strike price, the expiry date and the premium, and what each one represents.
By the end you will be able to
- Name the three edges of an option contract: strike, expiry, and premium.
- Explain why strike is a boundary and not a forced payment.
- Distinguish a right you can walk away from from an obligation you must fulfil.
How it starts: A Right You Might Not Use
- A stock trades at 250 rupees, and you think it could rise this month.
- You pay 6 rupees a share for the right to buy at 250.
- The month ends at 240 rupees, so what did your 6 rupees buy?
Words you will meet
- Strike price
- The fixed level at which an option holder may choose to buy or sell.
- Expiry date
- The date after which an option's right no longer exists.
- Premium
- The upfront, non-refundable price paid to hold an option's right.
- Right (vs obligation)
- A right can be walked away from, an obligation must be carried out.
In this module: Options Fundamentals
- Calls and Puts
- Strike, Expiry & Premium (this unit)
- Buyer and Seller Roles
- ITM, ATM, OTM & Intrinsic/Time Value
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