An Option is a contract to buy or sell an underlying asset between two parties. The counterparties of the option contract is 'the option buyer (holder)' and 'the option seller'. The option holder buys the right to 'buy' or 'sell' the underlying asset by a certain date for a certain price.

A call option gives the holder to buy the underlying asset and a put option gives the holder to sell the underlying. CALL / PUT If the options gives to its holder the right to buy an asset then that option is a “CALL” option. If the option gives to its holder the right to sell an asset then that option is a “PUT” option.


The price in the contract is known as the strike price, the date is known as the expiry date or maturity. If the option is exercised, then the date that the transaction will be realized is known as the delivery date. While American options can be exercised at any time up to expiry, European options can be exercised only on the expiration date.

The tenor, strike price and the option’s type (CALL or PUT) are the required input parameters to calculate the premium.


Premium is also known as the price or value of an option. The option buyers should pay the option seller a premium against the right that he received. Moneyness, Volatility and Time to Expiry affects the premium of an option.
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