Sample Term Paper

To sum up the paper, the paper has examined the practices and practices of option trading. In the exclusive discussion of the paper, it has discussed on major aspect of the historical aspect of the option trading, types of options where it discussed Call options and Put options. Then it has moved to discussing the Parties to the option, pricing of the options and the Option trade Margins that are designed to protect the option traders.

Lastly it has examined possible benefit of trading in option.  , however it can not fail to point out that there are dark side of the option trading which is the risks option trading. Therefore, it should be noted that option trading is not suitable for all kind of investors.

Appended documentation

Table1. Parties to call option

Call Option Taker Characteristics C all Option Writer Characteristics
Pays premium

Right to exercise  and buy the shares

Trades volatility

Profits from  price rising

Limited losses, potentially unlimited gain

Can SELL before  expiry to close out

Receives premium

Obligation to sell shares if exercised

Trades time decay

Profits from price falling or remaining neutral

Potentially unlimited losses, limited gain

Can buy back before expiry or before assignment to close out

Source: John c, and Mark, R. (1998), Option markets: New York, Prentice hall.p.342

Table2. Parties to put option

Put Option Taker Characteristics Put Option Writer Characteristics
Pays premium

Right to exercise  and sell shares

Trades volatility

Profits from  price falling

Limited losses, potentially unlimited gain

Can SELL before expiry to close out

 

Receives premium

Obligation to buy shares if exercised

Trades time decay

Profits from price rising or remaining neutral

Potentially unlimited losses, limited gain

Can buy back before expiry or before assignment to close out

Source: John c, and Mark, R. (1998), Option markets: New York, Prentice hall.p.341

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