What is the effect of buying a Call Option?

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• What is the effect of selling a Call Option?

  The seller of the call option has an obligation to sell the underlying asset at the strike price if the buyer of the call option chooses to execute his right. The seller receives a ‘Premium’ from the buyer.

• What is the effect of buying a Put Option?

  The buyer of the put option has the right, but not an obligation, to buy the underlying asset at the strike price at expiry. The buyer of a put option has to pay a premium to the seller for the privilege.

• When does the buyer of a call option benefit?

  The buyer of the call option benefits when the price of the underlying asset is above the strike price at the expiry of the contract.

• When does the seller of a call option benefit?

  The seller of the call option benefits when the price of the underlying asset is below the strike price at the expiry of the contract.

• What is Out of The Money (OTM) Call Option?

  A call option is said to be OTM when the underlying security’s current market price is lesser than the strike price of the contract.