What are the Options?
An option is the most used product while doing the Hedging. In an option contract, the buyer is given the right but not the obligation to buy (sell) as an asset against the pre-specified price within a specified time. Options trading is done while paying a premium to the option seller.
There are two types of options, including the call option and the put option.
In a call option, the option buyer gets the right, but not the obligation, to purchase the underlying asset by a certain specified date at the exercise price.
While in the put option, the option buyers have the right, but not an obligation, to sell the underlying asset by a selected date at the exercise price.
How is Options Trading important?
Options contracts are widely used in hedging financial instruments. Options are used in almost all hedging strategies adopted by the institutions. Hence, risk managers must understand the forward contract well.