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THE BASIC APPROACH- Introduction

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THE BASIC APPROACH


Introduction
What Is an Option?
Although options are typically bought and sold through security dealers and brokers, it is important to understand that options are not securities. Unlike stocks, warrants, or corporate bonds, options are not authorized or issued by any company on its behalf. Rather, an option is simply a contract between two parties, a buyer and a seller. The buyer is often referred to as the owner or option holder, and the seller is often referred to as the option writer. A call option gives the option holder the right to buy an asset at a set price within a certain time, while a put option gives the option holder the right to sell an asset at a set price within a certain time. In neither case is the option holder ever obligated to buy or sell.
For an example of an option contract, suppose you're in the market for a new car. Sitting there in the dealer's showroom is that spectacular model you'd love to own. Because it is popular, there is li…