An option is an arrangement giving its buyer the right, but not the obligation, to buy or sell a certain asset (stock, currency, commodity or other) at a fixed price (strike price) at a certain date in the future (expiration date).

The options are of two types:

Call option. In this case, the buyer of the option has the right, but not the obligation, at its maturity to purchase the underlying assets. The maximum risk of loss is the premium paid (the price of the option), compared to the possibility of larger losses if the price of the underlying assets falls sharply.

Put option. The buyer of the option has the right, but not the obligation, at its maturity to sell the underlying assets. The maximum risk of loss is the premium paid (the price of the option), compared to the possibility of unlimited losses if the price of the underlying assets rise.

Call and Put options can be “in the money”, “at the money” and “out of the money” as follows:

Option type	"In the money"	"At the money"	"Out of the money"
Call	The price of the underlying asset is higher than the strike price	The price of the underlying asset is approximately equal to the strike price	The price of the underlying asset is lower than the strike price
Put	The price of the underlying asset is lower than the strike price	The price of the underlying asset is approximately equal to the strike price	The price of the underlying asset is higher than the strike price

Options are a derivative financial instrument whose price (premium) mainly depends on the price of the underlying asset. The remaining time until maturity, as well as the price dynamics of the underlying asset, have a significant influence on the value of the premium. All other things being equal, the reduction in the time to maturity of the option and the low volatility lead to a decrease in its value.

All types of options from ELANA Global Trader (currency vanilla options, exchange-traded options on futures contracts and exchange-traded equity options)