1: option definition
2: how does the option work
3: option vs employee option
4: exam of an option
Opening information:
Option means the choice to choose something between two or more elements or matter. The matter or elements would be anything. On options, having a choice, it helps decisions on the benefits side.
So now let’s have a look at what is an option, how the option works in the commodities for corporate industries, and what is the difference between the options and employees” options, finally one clear example of the option.
1: option definition
Market for the diamonds is always large and very demanding all the time because diamonds’ rareness makes certain things the most valuable among people.
If anyone got a diamond freely or on any subway, does the person throw it away, no way.
Mattien is a man who exports diamonds to lots of countries legally, he is a very rich highly qualified, and educated person.
Mattien understands that a diamond’s price and its value will skyrocket in the future.
So he eagerly finds one of his best and lowest diamond suppliers in the market.
By understanding the growth of the diamonds, matte had a contract with a diamond supplier by paying some advance premium.
The contract would be to purchase the diamonds at a pre-determined price, which means at a strike price for the next 10 years.
However, the strike price was an agreement by paying a premium amount to the suppliers. It doesn’t matter what is the price of diamonds in the future if it’s above or below the strike price.
The matter had to pay the strike price amount to the supplier of the diamonds whenever he purchased the diamonds.
If the price of the diamonds was below the strike price, the diamond supplier had the authority to keep the whole amount of premium by himself.
All the paid premiums to the suppliers would be considered as a loss to the matter, or else if the price of the diamonds skyrocketed above the strike price.
The matte leads to huge profits by using the strike price on the purchase of diamonds at the same price over and over, no matter how much it costs.
He exported the diamonds as much as possible and made a huge amount of profits.
Here the contract made between the supplier and Mattien to purchase the diamonds is called an option. Because Mattien had a contract with a diamond supplier with an option to buy or not to buy the diamonds.
But not to purchase the diamonds, instead, he had the right to purchase the diamonds at a strike if he needed to. That’s why it’s called an option.
So now let’s have a deep look at how the option works as a commodity in the market, and how it’s also used by the Corporation to make profits. the
2: how does the option work
In the above definition even diamonds as influenced by an option, because it’s a commodity.
At the same time, anything related to commodities is considered to trade as options in the security market.
So any speculator in the market would take and predict any commodities price and trade to make huge profits.
Therefore option trading has become very popular and highly speculative in the security market.
The person who provides a guarantee to purchase certain items at a strike price (market price) receives the premium amount from the option purchaser.
Moreover, this premium receiver is called an option writer in the market.
Most people’s confused about the option and Employee options plan in the security market, so let’s look at the key differences.
3: option vs employee option plan
The difference between the option and employee options plan is, that options are normally considered as contracts to buy or sell certain items without any order to purchase them.
Employee options plans are the ones that are used by the corporate industry to produce options to purchase the Ownership of shares at a pre-determined price.
Normally option comes in a commodities market, using the concept of options Corporations to provide to their employees and influence them to make profits in their business.
To make you more clear about the options let’s see below one obvious example.
4: example of an option
Say if your friend is an option writer and if you option buyer. your friend is offering oil at the price of 12 dollars.
If you buy your friend contract option to make a profit in the short term. This means you paid your friend 20 dollars of premium extra to buy the oil at 12 dollars after the 11 months.
Later the oil is trading at 43 dollars which means you friend option writer had to pay 11 dollars extra including of 20 dollars premium you paid, a total of $31.
Market rule: #100157
Options come in market rule, options are part of trading with security rights from price deriving from the original securities trading current cost. So any action you take is completely responsible from your side.
If your investor and not comply or align investing based on market rules please learn about how to regulate your investments under your control with the use of Rule investing.