An option is a contract which gives its holder the right, but not the obligation, to buy (or sell) an asset at some predetermined price within a specified period of time.

Options allows an investor to “lock in” the followings:

a. a specified number of Shares
b. at a fixed price per share, called strike or exercise price
c. for a limited length of time

Options are two types:

01. Call option: Call options gives the holder the right, but not the obligation, to buy a given quantity of some asset at some time in the future, at prices agreed upon today. When exercising a call option, you “call in” the asset.

02. Put option: Put options gives the holder the right, but not the obligation, to sell a given quantity of an asset at some time in the future, at prices agreed upon today. When exercising a put, you “put” the asset to someone.

Intrinsic value is the difference between the exercise price of the option and the spot price of the underlying asset.

Call Options:
Intrinsic value = Stock's Current Price - Call Strike Price

Put Options:
Intrinsic value = Put Strike Price - Stock's Current Price

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