Finance Research paper

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Call and Put Options in Finance
Call and put options are derived from the fluctuating prices of a commodity in the economy. A trader may decide to buy a call option when they expect the prices to rise within an expected time. A put option, on the other hand, is bought when a trader expects the price of the commodity to fall after an expected period of time. Let us take an example of a call option on the shares of a company A. It has a strike price of $100 and is to expire on 16 April. It is important to take note that the expiration date is always on the third Friday of the scheduled expiration month. The option contracts dictate to the seller and buyer the rules of engagement in the transactions (Jongadsayakul 106-110). Let us say the buyer buys 100 shares at a price of $2 dollars per contract. With the call option, a buyer can purchase the shares at $100 and trade them right away at $105. This is called in-the-money. Due to this transaction, the shares will sell at $105 on the expiry date instead of $100. Each option in the transaction represents 100 shares which amount to $500. This option yields a whopping $300 profit to the buyer. However, if the option expires, company A will trade below $100, and the co tac expires out of money. In events such as Forex Exchange, the call option is applied when on has conducted a good study of the trend. The wrong call option can result in big losses. As a trader, I would p…