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Derivatives - Coggle Diagram

- - - - Income for Writer, Cost for Holder (this is because this acts as insurance or hedge).
    - - e.g. 1 Contract = 100 Shares
    - - Holder/Taker (Buyer)
        
        The Holder has the right but not the obligation to buy (or sell) @ strike price.
        
        Always pay the premium to the Writer.
      - Writer/Insurer (Seller)
        
        The Writer has the obligation to buy (or sell) if the Holder decided to excercise the option.
        
        Insurance seller.
  - - - Holder has the right but not the obligation to buy @ strike price.
      - Holder can excercise the option anytime berfore or at expiration (American style).
      - Writer cant do anything if the holder decides to excercise the call option.
      - The higher the strike price, the cheaper the option price.
      - Buy Call Option to hedge a Short position in the underlying
      - As a speculation tool, buy call option if we think market price would go up.
    - - Holder has the right but not the obligation to sell @ strike price.
      - Holder can excercise the option anytime berfore or at expiration (American style).
      - Writer cant do anything if the holder decides to excercise the call option.
      - The lower the strike price, the cheaper the option price.
      - Buy Put Option to hedge a Long position in the underlying.
      - As a speculation tool, buy put option if we think market price would go down.
  - - - Option can be exercised on or before expiry.
    - - Option can only be exercised on expiry date of the contract.
  - - - Greeks