OPTION
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What is an option in the context of treasury management?
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date. The buyer pays a premium for this right.
What is the maximum profit for an option writer (seller)?
Limited to the premium received from the option buyer.
What is the difference between a call option and a put option?
A call option gives the holder the right to buy the underlying asset at the strike price, while a put option gives the holder the right to sell the underlying asset at the strike price.
What is a 'long call' position in options trading?
Buying a call option expecting the underlying price to rise.
What is the 'strike price' in an options contract?
The strike price (also called exercise price) is the predetermined price at which the holder of an option can buy or sell the underlying asset when the option is exercised.
What is a 'short put' position in options?
Selling a put option, obligating writer to buy if exercised.
What does 'option premium' represent?
The option premium is the price paid by the buyer to the seller (writer) of the option for acquiring the right embedded in the contract. It is the maximum loss the buyer can incur.
What does 'exercise' mean in the context of an option?
The option holder invokes the right to buy or sell.
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