Investment

There are two types of options: a call and a put. A call option gives the holder the right to buy the underlying asset. A put option gives the holder the right to sell the underlying asset. Therefore, an option holder really has an option to exercise either the right to buy or the right to sell.

While holders have no obligations to exercise their rights, writers are obliged to honour the contracts they have sold if the holders choose to exercise theirs however disadvantages this may be to the writers. When writing options, the writers risk incurring a loss or forgoing a profit. In turn, they receive a premium from the buyers. The options buyers’ exposure (before exercising their rights) is limited to the premium paid for the options.

(Source: HKEX)