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7. A Quick Review and Quiz > Options: Calls and Puts, Nature of Right Not Oblig...

Options: Calls and Puts, Nature of Right Not Obligation, Buying Versus Selling, Premium, Introduction to the Greeks

Now that we have firmed up our bond basics, let’s move on to options. If you want a great tool for understanding any kind of decision making, particularly in finance, you should make sure you learn how options work. Even though they lend themselves to some remarkably complex mathematics, at their core they are both simple and powerful.

Direction Versus Optionality: Important Enough to Review

To understand options, remember the two concepts we studied earlier: direction and optionality. People often confuse the two. Direction is reasonably self-explanatory: Does an option trade benefit from an up or down move in the underlying asset? Optionality, meanwhile, has to do with the unique property of options: known, up-front maximum cost versus open-ended, essentially unlimited gain.


  

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