Options
Options are financial contracts giving the buyer the right, but not obligation, to buy (call) or sell (put) an underlying asset at a predetermined price (strike) before expiration.
Concept map
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Definition
Options are financial contracts giving the buyer the right, but not obligation, to buy (call) or sell (put) an underlying asset at a predetermined price (strike) before expiration.
Use case
Used in derivatives workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Options
Key concepts: Premium (price paid for the option), Intrinsic Value (immediate exercise value), Time Value (remaining premium based on time to expiration and volatility). Options enable leverage, hedging, and income generation. Greeks (Delta, Gamma, Theta, Vega) measure sensitivities to various factors.
Example: An investor buys a call option on Apple: strike $180, premium $5, expiration 3 months. If Apple rises to $200, the option is worth $20 ($200 - $180), yielding 300% return on the $5 premium versus 11% return on the stock itself.