Options trading dates back to the 17th century Holland, where farmers purchased put options on tulip bulbs to reduce price uncertainty. The striking price, life of the option, and premium are negotiated between the parties involved.
The complexity of ETF options
Over-the-counter options are subject to counterparty risk and are generally not fungible. Exchange-traded options are fungible. For a given company, all options of the same type with the same expiration and striking price are identical.
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These had the following characteristics:. When the individual subsequently closes that position out with a second trade, this latter trade is a closing transaction. When someone buys an option as an opening transaction, the owner of an option will ultimately do one of three things with it:.
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No matter what the owner of an option does, the writer of the option keeps the option premium that he or she received when it was sold. It sets minimum capital requirements and provides for the efficient transfer of funds among members as gains or losses occur.
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Examples Of Exchange-Traded Derivatives
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