Call options and put options defined
There are two types of options traded on ASX, call options and put options.
Call options Call options give the taker (buyer) the right, but not the obligation, to buy the underlying shares at a predetermined price on or before a predetermined date.
To acquire this right the taker pays a premium to the writer (seller) of the contract.
Put options Put options give the taker (buyer) the right, but not the obligation, to sell the underlying shares at a predetermined price on or before a predetermined date.
To acquire this right the taker pays a premium to the writer (seller) of the contract.
In order to take up the right either to buy or to sell the underlying shares, the taker must exercise the option on or before the expiry date of the option contract. If the option is exercised, the shares are traded at the specified price (the exercise or strike price).
It is important to note that the taker of the option is not obligated to exercise the option. The taker can sell the option, or alternatively let the contract lapse.
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