In Finance, Option Trading is a contract which gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified strike price on or before a specified date. The seller has the corresponding obligation to fulfill the transaction- that is to sell or buy- If the buyer “exercises” the option. The buyer pays the premium to the seller for the right. In options trading, an option which conveys to the buyer the right to buy something at a specific price is referred to as a call; an option which conveys the right of the buyer to sell something conveys the right of the owner to sell something at a specific price is referred to as a put. Both are commonly traded.
Big Part of Options Trading is the Options valuation, this is the major of a academic and practical finance in basic term, the value of an option is commonly decayed into two parts. The first part is the intrinsic value, which is defined as the difference between the market value of the underlying and the strike price of the given option. The second part is the time value, which depends on a set of other factors, which through a multi variable, non-linear interrelationship; reflect the discounted expected value of that difference at expiration.
Option Trading Exchanges, while other over the counter options are written as bilateral, customized contracts between a single buyer and seller, one or both of which may be a dealer or market maker. Options are part of a larger class of financial instrument known as derivative products, or simply derivatives.