Option
A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price.
Plain languagePractical exampleConnected reading
01
What is it?
A contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price.
02
Why does it matter?
It creates nonlinear payoffs; time, volatility and strike affect value.
03
How should it be read?
Read intrinsic value, time value, expiry and implied volatility together.
04
Common mistake
Assuming the option buyer only needs to get direction right to profit.
A simple example
A call may lose money even when the underlying rises if the move does not offset premium and time decay.