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Option

An option is a derivative contract giving its holder the right, but not the obligation, to buy (call) or sell (put) an asset at a set price until a set date. The option buyer pays a premium for the right and can lose at most that premium; the option seller collects the premium but may bear unlimited risk.
Contents
  1. 1.Key points
  2. 2.Formula / calculation
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key points

  • VIOP trades BIST 30 index, single-stock and currency options.
  • Options are used for portfolio insurance (buying puts against declines), income generation (selling calls on held stock) and directional bets with limited risk.
  • time value decays daily; if the price stays flat the buyer loses.

Formula / calculation

Option premium = Intrinsic value + Time value. Intrinsic value is the favourable difference between strike and spot; time value depends on time to expiry and volatility (Black-Scholes model). Implied volatility is the expected volatility the market embeds in premiums.

Interpretation

Calls are bought on bullish expectations, puts on bearish ones.

Options are used for portfolio insurance (buying puts against declines), income generation (selling calls on held stock) and directional bets with limited risk. Leverage is high: a small premium controls a large position.

Pitfalls

time value decays daily; if the price stays flat the buyer loses. Losses for sellers can be unlimited. Illiquid options have wide spreads. Do not trade without understanding the Greeks (delta, theta, vega).

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Frequently asked questions

An option is a derivative contract giving its holder the right, but not the obligation, to buy (call) or sell (put) an asset at a set price until a set date.

Option premium = Intrinsic value + Time value. Intrinsic value is the favourable difference between strike and spot; time value depends on time to expiry and volatility (Black-Scholes model). Implied volatility is the expected volatility the market embeds in premiums.

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