17/06/2026
CMA USA PART -2
TOPIC # OPTIONS
Note: 1 (Will continioue)
In security trading, an option is a financial contract that gives the buyer the right, but not the obligation,to buy or sell an underlying asset (such as a stock or ETF) at a set price within a specific timeframe
Strike Price: The fixed price at which the underlying stock can be bought or sold.
⭕ Call Option gives the buyer the right—but not the obligation—to purchase a stock at a fixed price (strike price) before a specific date
⭕ A Put Option gives the buyer the right—but not the obligation—to sell a stock at a fixed price (strike price) before a specific date
⭕ In options trading, "Long" and "Short" refer to the position a trader takes in the contract. They describe whether a trader bought the contract or sold it
💠 The Long Party is the investor who buys the options contract. They pay money upfront to secure specific rights.
Long Call: Buys the right to buy a stock (expects the price to go up).
Long Put: Buys the right to sell a stock (expects the price to go down)
♀️ They hold all the decision-making power.
♀️ They choose whether to exercise the option or let it expire.
♀️ They are never forced to do anything
💠 The Short Party is the investor who sells (or "writes") the options contract. They take on a legal obligation in exchange for immediate cash
♂️ They sell the option and collect the cash premium upfront.
♂️ They must wait and see what the Long Party decides to do.
♂️ If the Long Party decides to exercise the option, the Short Party must fulfill their end of the contract
✅ Example
Stock of Alfa Company is trading at $50.You agreed to pay a $3 premium per share for 100 Shares, and for a $45 Strike Put Option expiring in one month.
Two weeks later, Alfa Stock price fall in to $35.
So, you exercise your right to sell 100 shares at your locked-in price of $45 instead of the market price of $35.
Your net profit: $45 strike price – $35 market price – $3 premium = $7 per share ($700 total)
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