Selling Options

The Role of the Options Buyer and Seller

admin — Fri, 19 Mar 2010 18:08:37 +0000

The person, who sells option contract to the option buyer as his opening trade, is also known as option writer, seller or granter. Opposite trade to the option buyer is taken by the option writer. Because of this, he or she has the counter risk profile of the option buyer. The option writer has a temporary liability. If he or she is being called to fulfill his or her obligation, he or she just likes the insurance underwriter. However, the option writer is paid by the option buyer a premium upfront for taking on that risk, which he or she will keep it. If the option buyer doesn’t exercise his or her option, the option contract will be left to expire worthless. In this case, the option writer will earn the premium that the option buyer pays to him or her early. It is much the same way an insurance underwriter does.

Market movements will cause the option prices react differently. How it will react is totally dependant on whether the options are call or put options. If the market price increases, it gives a positive effect on call options but a negative effect on put options. In the other way round, if the market price decreases, it gives a negative effect on call options but a positive effect on put options.

If you estimate that the underlying market will make a concrete move higher, you can buy a contract of call option and after the market has gone up, sell it to earn a profit. Reversely, if you estimate that the underlying market will make a concrete move lower; you should buy put option and after the market has gone down, sell the put option to earn a profit. Based on the above statements, if the market price is going up, the call option prices will go up too. However, the put option prices will go down if the market price is going up.

Let’s try an example of buying a contract of call option on CAT shares and deeply discuss each component. Let’s us make an assumption in this example that CAT shares are trading at $30 in the 5th of February. So, we will buy 1 CAT March 29 call option. The ask price of the option in that moment is $3.4. The premium that we need to pay is equal to the option ask price times 100, which is equal to $340. This amount is not yet deduced by any transaction commission. In this example, buy 1 means buying one contract of CAT call option. One contract of CAT call option will give us the right to buy 100 units of CAT share. One contract is like one agreement that involved 100 units share. CAT is the underlying security on which the option is based. March is the month in which the option expires and it is on the third week Friday in that month. 29 is the exercise price, which is also known as strike price. By owning the call option at this strike price, we have the right to buy 100 units of CAT share at $29 at or before expiry in March.

Stop Loss Order for Day Trading

admin — Fri, 19 Mar 2010 05:23:09 +0000

What is Stop Loss Order?
Stop loss order is an order to close position if/when losses reaches a particular point. In other words this is an order by which you can decide the maximum loss that you are ready to accept. Here we are going to discuss only Stop Loss Order regarding Day Trading, but the same principle can be used for Swing Trading or Long Term Trading.
Following Example can explain the point.
If u have placed a buy order at 100. You need not place a stop loss order till your trade gets executed. Once your trade gets executed, you have to place another order for Stop Loss.
Now lets assume that CMP(Current Market Price) is 100.50.
Stop Loss Order should be like this
Type= Sell
Quantity = Quantity you have got (received).
Price=99.40
Trigger price =99.50
Note: Trigger price is the price at which your order gets triggered (fired). Till then it’s on hold.
So in our example If CMP falls from 100.50 to 99.55 nothing will happen but at 99.50 your order (Stop Loss) for sell will get executed at a price of 99.40 so your loss would be limited to 0.60 (100-99.40) only. Additional Points:Percentage Of Stop Loss
For day trading stop loss of 1-2% max is recommended. Some traders like me use 0.5% stops, which is what I have explained (100-0.5%*100=99.5). You have to decide the % according to your experience & confidence.
If you don’t use stop loss order the price can go down by 5% or even 20% & you won’t be able to do much then, hence for every trade without fail you should use stop loss order.A warning, don’t ever think that just because you have placed stop loss order, you are 100 % safe. That’s not the case even after a stop loss order you can suffer huge loss. Surprised? See how.
In the above example if the your stop loss order gets triggered at 99.50 for 99.40 but there is no buyer at 99.40 so the order will get triggered but not executed till there is some one ready to buy at 99.40. In mean while some one else has put a sell order at 99.30, now you are at number two still waiting, then if some one puts a sell order at 99.10 you are at number three & hence your order may left behind while others keep putting orders at less than your order & you may wonder why my stop loss order did not get execute!!!!!!!!!!! Solution for above problem is as follows.
The gap between trigger price & price is important. If you want your stop loss order to be more secured, increase the gap.( Gap between Trigger Price & Price). i.e. triggered price at 99.50 & price 99.10(instead of 99.40). You should change the gap depending upon the share you trade. More volatile stocks require big Gap while for slow movers small Gap is enough. You can decide the Gap on the basis of difference between best buy & best sell (bid /ask) in second window.Stop Loss For Shorting
For shorting that is selling first & then buying, the stop loss order has to be reversed as follows.
If you have shorted at 100(CMP=99.50)
Stop Loss order should look like this
Type =Buy
Quantity = Quantity you have shorted
Price=100.60
Trigger Price =100.50 Cancel/Modify Stop Loss Order
The most important thing if your stop loss does not get hit & you earn profit by squaring of your position; do not forget to cancel the stop loss order. Yes I repeat do not forget to cancel the stop loss order. Other better option is that you can modify your stop loss order as Trailing Stop till the execution. (I do this as I forget to cancel the stop loss order.)
Following example can explain how you can do this.
Your Stop Loss for first example was 99.50 for 99.40, right? Now if the CMP has gone up from 100.50 to 102.20, you can modify your stop loss order to 101.10 in place of 99.50 & 101.00 for 99.40. If price keeps going up, keep following the price by modification. Always remember the following rule.
For buy’s Stop Loss Order (Type=Sell) “Trigger Price” should be more than “Price” of Stop Loss Order & for Short Selling’s Stop Loss Order (Type=Buy) “Trigger Price” should be less than “Price” of Stop Loss Order.Important Note:
Some Trading Systems allow Trader to enter Stop Loss Order at the time of Actual Order and some Systems allow Stop Loss Order to get automatically cancelled against squaring off position.
Happy Day TradingVishal Deshpande

The Basics Of Forex Trading

admin — Thu, 18 Mar 2010 18:02:39 +0000

The idea of trading a specific good or service at a speculated future value is not a new one and can be traced back hundreds of years to times when farmers traded crops for a pre-agreed price, based on speculation of what the product would be worth a few months down the line.

Forex trading, or FX trading, involves predicting the strength of one of the worlds many currencies against another and trading accordingly.

Forex trading takes place all over the world, all day, every day. Unlike trading on the stock market, the forex market is not controlled by a central exchange, but is instead found on the interbank market, which is regarded as an over the counter (OTC) market.

Business takes place directly between two traders, either over the telephone or via electronic networks. Trading begins in Sydney, and moves around the globe as the business day begins, first to Tokyo, onto London and then to New York.

Most forex traders focus predominantly on the largest, most liquid currency pairs, known as “The Majors”, which includes US Dollars, Japanese Yen, Euro, British Pounds, Swiss Francs, Canadian Dollars and Australian Dollars. The majority of daily forex trading takes place between the major currency pairs.

With an average daily turnover of several billion, forex is the most traded market in the world. Unlike other financial markets, investors can respond immediately to currency fluctuations, whether they occur day or night.

If you are interested in forex trading then it is helpful to know how different currencies trade, as well as the importance of margin and leverage.

Forex trading is usually conducted with relatively small margin deposits, which is beneficial as it allows investors to exploit small fluctuations in currency exchange rates.

Trading on leverage increases your potential for profit and forex trading providers offer different levels of leverage. For example, a leverage of 200:1 means that for every £1 in your account, you could trade £200 worth of a position.

Once you’ve got the hang of forex trading you could investigate exotic options that are highly specialised forex tools that enable you to tailor your trading strategies for specific situations.

There are various forex options which offer you flexibility in your trading. Through buying and selling currency pairs you can take advantage of the movement between the two whilst also limiting your exposure to risk.

You can gain profit with forex options when currency pairs are moving higher, when currency pairs are moving lower and even when currency pairs are moving sideways.

Exotic options are popular because they can be customised very precisely to suit your specific needs. Exotic options are not available on every currency pair in forex trading. Only those currency pairs that are traded frequently enough qualify to be chosen under exotic options.

Trading Robot – Does it Really Work?

admin — Thu, 18 Mar 2010 05:22:21 +0000

Everyone knows that one of the best ways out there to make actual money is to invest it in the stock market, and to trade and sell stocks at great rates in order to make money. Many people do this – they can purchase stocks easily at a low rate, and then sell them when they are at a rate that is good for them. This means that they are able to make money, and it is one of the ways that they can enjoy their lives even more. Therefore, in order to make money, you might want to think about trading stocks and buying and selling. If you choose the right ones, stock trading can be a great way for you to make money.

However, when it comes to choosing the right ones – that’s the main issue with stock trading. Many people spend years owning stocks and not making much money off of them because they stay in the same place. Some people invest in the stock market only to choose the wrong stocks, and they end up with stocks that are not worth anything, or that go down in profit margins. Stock trading can be very difficult to get the hang of, and it can be time consuming. Therefore, something that you need to think carefully about is how you can play the stock market without needing to worry about which stocks to buy and which to sell. A trading robot is something that can be very helpful.

A stock trading robot is one of the options that you can have – simply by purchasing it. With a stock trading robot, you can make sure that you know the right moves to make. If you follow the instructions that the stock trading robot gives to you, you’ll be able to make a huge profit in just a few days, and you can continue to make money on the stock market simply by following the suggestions and instructions of the trading robot.

A trading robot is something that you are going to want to investigate if you plan on playing the stock market at all. It is important to understand how one works. A trading robot is a program that has been created and loaded with all of the mathematical information regarding stocks. IT has the capability to recognize when something is worth less and when it will be worth more. A trading robot can also access the current prices of the stocks, which means that it is going to have the information about which stocks are good to keep, which are good to sell, and which are going to make you money quickly.

When you use a trading robot, you’ll have a program on your computer that actually is the robot. This will have all of your information, as well a information about the stocks that you currently own. Each day, the trading robot will give you suggestions about which of the stocks you should buy and how many you should buy – and they’ll also tell you which stocks you should sell at what time.

The trading robot works as someone who knows everything about the stock market, and is giving you instructions about what to do. It has all of the intelligences and brains of someone who has been playing the market for a long time, and it is able to show you exactly what needs to be done. Therefore, if you are able to follow the instructions that the trading robot gives you, and if you are paying attention to the suggestions, chances are going to be good that you are able to come to a lot of good conclusions about what you should be doing on the stock market, and how you should be investing.

A trading robot is something that many people might use for stock trading. It basically takes the guess work out of what they should buy and sell, and what they should keep. It means that you will have something there that is guiding you through the stock market, and helping you to make sure that you know what you are doing when it comes to trading stocks. If you want to get the most out trading, try a trading robot.

Option Expiration and Exercise

admin — Wed, 17 Mar 2010 17:48:26 +0000

Beginning options traders often make costly mistakes due to either a lack of knowledge or misinformation about the basic parameters of options and their exercise. Examples of common errors include being surprised that one is unable to close an index option position on the Friday before expiration, or being surprised by an unhedged option exercise during expiration. This paper covers some of the basic concepts surrounding option expiration and how options are exercised. Be sure you understand the settlement, exercise, and expiration characteristics of the options you trade.Option ExpirationEquity options expire on the Saturday following the third Friday of each month. It is common to hear or read that equity options expire on that third Friday. While that isn’t technically correct, it is true that Friday is the last opportunity to trade those options. Saturday expiration was established to give the brokerages time to settle the accounts before the options technically (legally) lose their value.However, some (but not all) index options cease trading at the close on the Thursday prior to expiration and those positions are reconciled on Saturday based upon the settlement price established on Friday. For example, the SPX index options cannot be traded after the close on the Thursday before expiration; but the settlement price, usually reported as SET or $SET, is established Friday morning based on the opening price of each of the 500 S&P stocks. Since many stocks do not open immediately at the opening bell, the settlement price will differ from the SPX opening price on Friday. Option ExerciseThe owner of an equity option has the right to buy or sell 100 shares of the underlying stock anytime before expiration. If you are long the option (i.e., you originally bought it), you may or may not choose to exercise the option you own; it is entirely your choice. If you are short the option (i.e., you originally sold the option), it may be exercised against you at any time. Typically, you will receive an email from your broker after the market close, notifying you of the exercise. You may be exercised for only a portion of your option position, e.g., only 2 of your 10 contracts. If you were short call options, you will now see a short stock position in your account, i.e., you were obligated to sell the stock at the strike price. If you were short put options, the exercise forces you to buy stock at the strike price, resulting in a long stock position in your account. When options contracts are first created, exercise is specified in one of two different ways: American style or European style. American style options can be exercised on any business day prior to expiration, whereas European style options can only be exercised at expiration. All equity options are subject to exercise American style, while most index options are European style, e.g., the SPX. But there are some exceptions with a small number of index options settling American style, e.g., the OEX.Upon expiration, your broker will automatically exercise any expiring options in your account that are $0.05 or more ITM (in the money) in accordance with Options Clearing Corporation regulations. If expiration is approaching and the stock price is near your strike price, and you do not want to hold either the long or short stock position that will result from the exercise of your long option, sell the option before the market closes on the Friday of expiration week. If you are holding a European style index option position and wish to close it before expiration, be sure to complete those orders before the market closes on Thursday before expiration. If you wish to exercise any of your long equity options, you must issue an order to your broker before the market closes on the Friday of expiration week. It is generally good practice to close option positions before expiration to avoid unpleasant surprises.Option spread positions always have a short option position by definition, so they are subject to exercise at any time. However, the long option protects you in this situation, e.g., if I am holding a 10 contract spread and I receive a notice of exercise from my broker for 3 of the short options, I simply ask my broker to exercise 3 of my long options to cover the exercise.In practice, it is rare that your short option positions will be exercised against you before expiration. But, as noted above, your long option position protects you against this exercise. In general, put options are rarely exercised unless there is less than $0.10 of time value left in the option. The same is true of call options with one major exception: calls are often exercised just before a stock goes ex-dividend, e.g., if the call has $0.10 of time value remaining, but the dividend is $0.50 per share, it may be advantageous to the option owner to exercise the option and hold the stock through the ex-dividend date to collect the dividend payment. Sometimes an option will be exercised against you in a situation where it makes no sense whatsoever and is probably a mistake or due to inexperience of the person on the other side of the trade.If you are holding a vertical spread position going into expiration, there are several different situations possible. If both of the options are fully in the money, your broker will automatically exercise both of the long and short options and credit your account with the spread amount less commissions. However, if the stock price closes expiration Friday within the spread, the situation is a little tricky and the results may surprise you. For example, if we were holding a bull call spread, the short OTM call will expire worthless and the broker will exercise the long call on your behalf, resulting in shares of stock in your account the following Monday (and perhaps a call from your broker if your account does not have sufficient cash to buy the stock). If you do not want to purchase the stock, you should close the spread before the market close on the Friday of expiration week.Credit spreads can also result in surprises at expiration. For example, if I hold a bull put spread and the underlying stock closes Friday of expiration week at a price within the spread, my short put options will be exercised against me, resulting in a long stock position in my account. The long put option does not protect me because it expired worthless.In general, if the stock price closes on expiration Friday within the strike prices of my vertical spread, it will result in either a long stock position or a short stock position in my account the following Monday. Unless you are willing to hold that stock position, it is usually best to close the spread on Friday. Many traders adopt a general rule of closing all option positions the week before expiration to avoid the surprises that are all too common the week of expiration.

Formula to Recall during Online Day Trading

admin — Wed, 17 Mar 2010 05:14:27 +0000

One is a day trader by trading stocks, options, commodities, or futures by using the Web. Do you know the conditions of online day trading? This query crops up lots of times in our user’s assembly. Now, if I unintentionally (or wittingly) contravene any of these rules, what comes to pass? There are several variations of actions that can come about that may start online day trading and I will try to answer most of them. I will state the most frequent since each circumstance is unlike.Online Day Trading This article only discusses online day trading as it pertains for stocks and options vs commodities and futures. Online day trading rules for commodities and Futures are have a different set of rules. I have no idea about other trading disciplines. You will learn day trading inside functions.When you buy and sell a stock, option, future, or commodity on the same day, that is online day trading. Online day trade has just been performed when 1000 shares or contracts ABC (fictitious symbol) has been bought at 9:30 am and sold at 12:15 pm.Pattern Day TraderA pattern day trader is defined in Exchange Rule 431 (Margin Requirement) as any customer who carries out 4 or more same online day trades within any 5 successive business days. Further, your online day trading activities are greater than 6 % of your total trading activity for that same 5 day period (from FINRA web site). The margin requirements for commodity and future trading is much different. Day Trading Rules for a Day Trading System1. The equity in your trading account must be preserved over $25,000 to be able to trade and not come upon setbacks. Trading futures and commodities, margins can be as low as $500.2. Any profits from the stock’s transaction cannot be utilized in a new trade on the same day when buying and selling similar stock in the same day for accounts under $25k. This may also hinge on each brokerage account. In converse, futures and commodity trading allows a trader to trade multiple times in the same day using the same funds. 3. Only 3 trades are permitted within one week (5 trading days). By the 4th day of trading, you will be given a 90-day suspension of all trading activities.This is not true with Futures and Commodity trading. A online day trader can trade mulitple times in a day with no restrictions.Penalties with Stocks and Options. The importance of a day trading course.1. You may get a 90-day suspension of all online day trading activities.2. Your account can be suspended for 90 days and no trading will be permitted in that account.Avoiding Problems1. A minimum equity of $25,000should be kept in your trading account.2. For accounts under $25k, never buy and sell a position in the same day, maintain your position overnight.3. If you buy and sell the same stock/option in the same day, do not go into a new trade where the funds from the sale of the stock just sold will be used in the purchase of a new position.4. If you have procured a position from cash from a prior same day sell, it would be sensible to preserve that position overnight.5. Do not accomplish a day trade activity more than three times per week.I have attempted to present the day trading rules as I have encountered them over my years of trading. In depth information on online day trading and pattern day trader can be obtained by exploring the Net . Wikipedia can be utilized to find such information.I have used accounts with less than $25k and have never had a ninety-day suspension canon applied, but have had some admonitions about a trade that may prompt the 90-suspension canon. When this ensues, I just wait for the following day and recommence trading. Good luck in your trading.

How To Sell Goods On Ebay

admin — Tue, 16 Mar 2010 18:03:05 +0000

Quite recently I was having a clear out and came across a box of old vinyl albums in a box at the back of a cupboard. The obvious question arose; Now what shall I do with all this stuff? Now Im a pretty altruistic kind of guy and quite often Ill take things down to a charity shop rather than just dumping them. On this occasion Id earlier been looking for some books on ebay and the obvious thought occurred to me, why not sell the albums on ebay? Now by and large vinyl albums dont sell for a fortune on ebay, but rarer and more unusual ones – in good condition – can have dedicated fan bases eager to buy up original recordings. So, armed with my collection of some way-out 60s vinyl albums I needed to find out how to sell on ebay.
The first thing to do is register with ebay as a seller. Nothing could be easier as the ebay website takes you through this procedure in small and simple steps. Before starting this there are a few things to think about. First is how do you want people to pay you? Youll be offered several options by ebay for how to pay and be paid on its website. Using PayPal is a great way to finance things, for both selling and buying over the internet. So you might want to register with PayPal first, the alternative to that is youll have to register a debit or credit card with them. Also, itd be a good idea to think about the trading name you want to use. You can of course alter this later but you might consider; do you want to use your own name or a nick-name or something to do with what youre selling or whatever? A hint here is – have several names ready, regardless of how original you think yours might be youd be amazed at how many seller names are already taken. Youll also need to have a password ready. When the on-screen instructions offer you a choice for the level of seller you want to operate at, initially Id recommend creating a personal seller account.
Having completed the registration process, youre ready to open your account and start selling on ebay. Again, before starting this Id do a bit of preparation; what are you going to write about the item(s), have you got a photograph of it/them ready, how much will it cost you to dispatch the item(s) to a buyer, etc? When you are ready, select the Sell tab and the category/sub-category for the goods you want to sell. You then go to the Create your listings page. Make sure you accurately and clearly name and describe your item(s). Id always recommend having a photograph ready; it helps reassure potential buyers that youre on the level. The photo needs to be either a gif or jpeg file and ideally 300×400 pixels, ebay can/will automatically resize images – but its best if you edit the picture yourself to ensure it really shows off the item(s) to maximum effect.
The next stage is to determine the selling format. You need to set a starting price for bids and, if youre confident that the item(s) have a minimum retail value, you can set a reserve price – hidden or shown – that must be met or exceeded for a sale to be made. Dont forget that once youve made a sale youll owe ebay a fee or some commission. Upload the information and wait for all the bids to come in. You may well get some queries from potential customers, be polite and patient with them – one of them might well be the person who buys from you. Finally, youll automatically be sent the winning bidders email address by ebay, contact them within three days and close the deal.

What Is The Role Of An Option Writer?

admin — Tue, 16 Mar 2010 05:49:29 +0000

Trading forex options can be a wise move for a trader since it has many attractive features. Firstly, it is flexible to use since the options buyer dictate the precise time and price of the underlying currency pair indicated in an options contract. He may exercise his option to go through with the purchase come expiration date of just let the option expire without value. Only the premium will be the option buyer’s loss. Another good thing about currency options is that it exposes the trader to a more limited risk and requires only a small amount at the onset of the transaction. This amount is what is called the premium and serves as payment for the buyers right to the option.Generally, to write, sell or grant an option is riskier than to buy or sell forex options. This is because the writer/seller of option may experience a loss of unlimited amount since it is his responsibility to provide for extra margin in his account to retain the position on the same level in case the market movement proves unsuccessful on his part. Another risk comes when the buyer decides to exercise his option after a break in currency movement and the seller has no choice but to settle in cash the option or give the interest. If the option is “covered” by another position, there may be lesser risk. If the option is on leverage, the seller gets an open forex position. If however the option is not at all covered, the loss on the part of the seller may be unlimited.

Guidelines to Help You Sell and Buy Websites

admin — Mon, 15 Mar 2010 17:31:56 +0000

Wondering how to sell web domain names? Domain name trading has now become a profitable business on the Internet. Premium domains enjoy great demand and are usually noted for their catchy names and remarkable traffic. If you’re thinking about selling your website, it pays to be prepared. Here are some strategies that can help you in buying and selling websites:- Keep financial reports and tax filings current. Although there may be nothing wrong with your website, you’ll scare off bidders with confusing or excessively delayed financial statements. If you’ve had trouble staying current in the past, upgrade your accounting software or consider using a CPA. It is vital to first assess the market value of your domain name through a domain appraisal study. Find out the market value of an extensive range of domain names such as aftermarket domains, high-value domains, top domains, secondary market domains, sounding domains etc.- Strive for accuracy. Serious bidders will demand a high level of comfort, especially about the accuracy of cash-flow statements. This is a time when it may really pay off to invest in audited financial statements.- Time your deal right. Although it always makes sense to try to sell during a hot market, it’s even more important to pay attention to what’s going on within your market niche. Don’t try to sell during a significant downturn – unless you absolutely don’t have any other options and are prepared to accept a rock-bottom price.- Keep things simple. Anything unusual is bad news when it comes time to selling your website. So look at your website the way a stranger would, and eliminate complications before you try to sell. If you have mixed the revenue from several websites, separate them unless you intend to sell all of them together.- Accept reality. If you’re operating in a highly competitive market, then your buyer will insist on a non-compete agreement. If you’re not prepared to make such concessions, your website probably won’t sell.- Put a realistic price tag on your website. A good rule of thumb is that only on the rarest of occasions do companies sell for a price that’s as high as six times pre-tax earnings. If you’re trying to sell for more than that, be prepared for your financial status to be examined under a microscope.- You can display a list of domain names for sale in the advertising market sites provided by various companies facilitating domain sales. Make your site attractive enough to invite a number of potential customers. In order to maximize the chance of sales, the site you created must be provided with relevant information.- Sell domain names at various discount rates plus additional features. You can offer multiple domain names for a wholesale rate. Customers always look for low prices. In the rapid changing domain name market, price value can go up as time changes. So never display current price values on the sites but give an option for request price. Another selling technique is to offer domain names with longer registration periods. Domains which have been registered for longer periods invite more customers because domain buyers are always on the lookout to reduce their risk from losing names through accidental expiration.These tips in for sellers can also be useful for people who are in the buying and selling websites business because almost everything that needs to be discussed in selling can also be taken into consideration when buying.

Here’S How To Differentiate An Option Buyer From An Option Seller

admin — Mon, 15 Mar 2010 05:11:18 +0000

Two main personalities are involved in the trading of currency options, the forex option buyer and the forex option seller. To put it simply, a forex option is a currency contract dealt in foreign exchange that gives the forex option buyer the right to either buy or sell a specified spot contract at a specified price on a given date. The said price is called strike price and the given date is the expiry date. The “right” is bought by the options buyer from the options seller with an amount called “premium”.In Foreign exchange, the Forex option buyer is simply the investor that holds or purchases the currency option. He owns the right to exercise the option but under no obligation to effect the transaction if he deems it inappropriate. He gets the right to sell the option contract before expiry date or hold it till expiration, thereby taking a position. The financial obligation of the option buyer, initially, is the payment of the premium. If on the expiry date the option buyer decides to exercise his option and buy or sell the spot, that is the time more money gets involved. If upon expiry date he does not exercise his option, the contact is rendered expired and worthless, negating any other obligation on either the buyer’s or the seller’s part.The Forex option seller, on the other hand, is otherwise known as the writer or the grantor of the option contract. The option seller, by contract, is obliged to take the opposite position when the buyer decides to exercise his option. The premium paid to him by the option buyer makes him assume the risk of getting a position in the forex spot market that involves some risks. If the market movement is favorable to the seller, he need not post any fund. If it is unfavorable however, he may need to add funds to his account to maintain the required margin. Both buyer and seller have the right to offset the option contract before its expiration.