Both types of contracts are selling and calling options that can both be purchased to speculate on the direction of stocks or stock indices, or be sold to generate income. For stock options, a single contract includes 100 shares of the underlying stock. Stock options are z.B. Options for 100 shares of the underlying stock. Suppose a trader buys a call option contract on the ABC stock with a strike price of $25. He pays $150 for the option. On the expiry date of the option, ABC shares are sold for $35. The buyer/owner of the option exercises his right to acquire 100 shares of ABC at a price of $25 per share (the strike price of the option). It immediately sells the shares at the current market price of 35 $US per share. He paid 2500 $US for the 100 shares (25 x 100 dollars) and sold the shares for $3,500 (35 x $100). Earnings on the option are $1,000 ($3,500 – $2,500), less the $150 premium paid for the option.

As a result, its net profit excluding transaction costs is 850 $US (1,000 to 150 $US). This is a very nice return (ROI) for an investment of only 150 dollars. An option agreement is an agreement between two parties to facilitate a potential transaction on the underlying security at a predefined price called strike price before the expiry date. Options are usually used for backup purposes, but can be used for speculation. In other words, options typically cost a fraction of what the underlying stocks would do. The use of options is a form of leverage that allows an investor to make a bet on a stock without having to buy or sell the shares directly. The seller`s disadvantage is potentially unlimited. Since the underlying`s spot price is higher than the exercise price, the author loses a loss (corresponding to the option purchaser`s benefit). However, if the market price of the underlying does not exceed the strike price of the options, the option expires worthless. The option seller benefits from the premium he received for the option.

For example, the shareholders` pact (if any) may include pre-emption rights on the issuance of shares or the transfer of shares to the company, and existing shareholders must waive those rights.