Types of Options

There are two fundamental types of options:

1. Call Options:

   • Give the buyer the right to buy the underlying asset at the strike price on or before the expiration date.
   • Buyers of call options are bullish on the underlying asset, meaning they expect its price to rise.
   • Sellers (writers) of call options are bearish or neutral, expecting the price to stay the same or fall.

2. Put Options:

   • Give the buyer the right to sell the underlying asset at the strike price on or before the expiration date.
   • Buyers of put options are bearish on the underlying asset, expecting its price to fall.
   • Sellers (writers) of put options are bullish or neutral, expecting the price to stay the same or rise.

American vs. European Options:

• American Options: Can be exercised at any time before or on the expiration date.
• European Options: Can be exercised only on the expiration date.

Most exchange-traded options on individual stocks are American-style, while options on indices are often European-style.