Let’s learn about basic Finance Non-Finance n today’s video by your own Finance Guru. Today’s topic of discussion is Options? So, what are options?
Ladies and gentlemen welcome back to finance tube this is your finance guru vishal-shekhar committed to make you rich today’s topic of discussion is options so what are options before we know more about options let’s look at this small video what’s going on here hey so you know what i’m actually looking into some real estate right now cuz i’m making some good money
So i was thinking of buying an apartment oh really i’m trying to sell mine because i’m moving abroad that’s great i’ve seen a place it’s a great place it’s a really nice place if you want you can buy that well how much are you quoting see for market like a market rate of quoted 1.50 you i can still make it less because of my friend so 140 that sounds pretty good
But you know what i’m in two minds right now because i found a good place at worley and it’s somewhere around the same price and it’s a pretty good place so i can’t really make a decision right now i’ve got an option what you can do is you can fix this deal with the token money so this is going to be like a price protected thing great so how much is the token on
That and how long would it be valid for three months so after right women still if you want my house you can take if you mandal buy something else i can sell it to someone else because i still have spare two months that’s great that sounds good so i have three months to make the decision while i still have a fixed price on your place that’s great i think we have
A deal yeah so what’s going on in here what we saw was a boy and a girl talking about some apartment buying and selling the boy said he is looking to buy a house and she says that okay i have to sell my house so what’s what’s what’s a great deal about it okay so you are trying to tell me that here the lady was very smart what she did she didn’t let the customer go
See cher you pay me a token money and i will protect your price and in case if your whirley property doesn’t materialize you can always come back here so what she did she converted a double-minded person into a person who created a win-win situation let’s talk in terms of options so when that boy gave token money effectively what did he do he bought a call option
Wherein up to next three months at any time he gets to buy this lady’s flat at 144 which he has given a token of 1 lakh however he is not obligated to purchase this house the reason why he gave the token was because he was in two minds so he was considering some other property as well that means for a call option the option buyer gets a right to buy but not an
Obligation to buy now if you look at the same thing from the girls perspective you will see that by accepting one lac token she has an obligation to sell up to next three months anytime during next three months if that guy comes and says okay here is your balance money give me the house she cannot ask for more price then right because she’s already accepted the
Token so ladies and gentlemen that token here becomes option premium and it goes without saying that if up to three months the guy doesn’t turn up the one lakh is not to be refunded because that’s the option premium paid by the guy to the girl now you may say who do that a lot of people do this why because if let’s say his worldly deal does not work out if he
Had not given the token probably the girl would have asked for 150 or even more after three months correct depending on market situation then also if the worldly deal works out for him wherein he is saving let’s say file act more by buying hourly property he would presume that i only saved for lux so it is a win-win for the guy now let us look at from the girls
Perspective the girl does not have to find any other buyer till next three months and she gets one leg extra even if she has to find a buyer three months later and you never know what market could be there the prices may also go low so both ways it’s a win-win situation so options has its own market when you create a right but not an obligation when you buy and
You accept an obligation for a premium and give away your right to say so basically again if you see options are very sophisticated ways of entering into transactions whereby risk of both the parties are mitigated one last word we have two types of options one is the call option which you saw in the video which the guy exercised so here in the call option the guy
Was the buyer the girl was the seller in technical terms the guy was the option buyer and the girl was option writer same situation can also be done in a put option put option works exactly the other way round wherein a girl would give some token to the guy for selling her house at a particular price because again the same win-win situation needs to be created
Only this time the girl would be in two minds to conclude there is and gentlemen options helps to mitigate the risk of both the parties also the easiest way to remember option is to remember the slogan call up put down so call option is always when the market is going up and put option is always used when the market is expected to go down for easier understanding
Of complex concepts subscribe to our channel financed you to finance you ladies and gentlemen i am vishal dhaka and i would like to welcome you to breaking news yes friends the breaking news is that the share mah
Transcribed from video
Options: Put Options and Call Options Part 1 | Vishal Thakkar By Finance Tube
