I am interested in derivatives trading. I would like to know much more in details about Call and Put Options trading, and meaning of ITM, ATM and OTM options
Manikandan Menon
Derivatives, as the name suggest, is derived from an underlying which can be a stock or a commodity etc. Derivative contracts can be futures or options. Since you’ve asked specifically about options, here we explain what it is.
An options contract is an agreement between buyer and seller of that contract which gives buyer the right to buy standardised quantity of the underlying at a predetermined price at a certain time (on expiry). Note that seller is obliged to sell the underlying to the buyer if the buyer decides so. A call option gives the buyer (seller) the right (obligation) to buy (sell) the underlying and a put option gives the buyer (seller) the right (obligation) to sell (buy) the underlying.
When the strike price of an option (participants can choose this as per their expectation) is same or very near to the current trading price of the underlying, it is called at-the-money (ATM) option, whether it is call or put.
When asset price is higher than strike price of a call option, it is called in-the-money (ITM) option and vice-versa for put options. When the asset price is lower than strike price of call option, it is called out-of-money (OTM) option and the opposite is true for put option.
We’ve covered extensively about derivatives which you can find here. We also provide derivatives trading strategies every week.
Send your queries to derivatives@thehindu.co.in
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.