What is Option?

In Global Financial Markets, for many years, options have been a means of conveying rights
from one party to another at a specified price on or before a specific date. Options to buy and sell
are commonly executed in real estate and equipment transactions, just as they have been for
years in the securities markets. There are two types of option agreements:

CALLS and PUTS.

• A CALL OPTION is a contract that conveys to the owner the right, but not theobligation, to purchase a prescribed number of shares or futures contracts of an
underlying security at a specified price before or on a specific expiration date.

• A PUT OPTION is a contract that conveys to the owner the right, but not obligation, to
sell a prescribed number of shares or futures contracts of an underlying security at a
specified price before or on a specific expiration date.

Consequently, if the market in a security were expected to advance, a trader would purchase a
call and, conversely, if the market in a security were expected to decline, a trader would purchase

a put. With the advent of listed options, the inconvenience and difficulties originally associated
with transacting options have been greatly diminished.