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KembaraXtra – Islamic Derivatives: Option Contract, Premium, Call Option & Put Option (With Scenarios)
🔹 What is an Option Contract?
An option contract is a financial agreement that gives the buyer the right (but not the obligation) to:
at a fixed price (strike price) within a certain time.
👉 The buyer pays a premium for this right.
🔸 Scenario (Option Contract)
👉 You can choose to:
🔹 What is Strike Price?
The strike price is the fixed price at which you can:
👉 It is agreed at the beginning of the contract
🔹 What is a Premium?
A premium is the fee paid to buy the option contract.
👉 It is the cost of having flexibility and choice
🔹 What is a Call Option?
A call option gives the right to buy an asset at the strike price.
🔸 Scenario (Call Option)
👉 If market price rises to $120:
👉 If market price falls to $90:
🔹 What is a Put Option?
A put option gives the right to sell an asset at the strike price.
🔸 Scenario (Put Option)
👉 If market price falls to $80:
👉 If market price rises to $120:
🔹 Key Points (Note Form)
🔹 Simple Summary
🔹 What is an Option Contract?
An option contract is a financial agreement that gives the buyer the right (but not the obligation) to:
- Buy or
- Sell an asset
at a fixed price (strike price) within a certain time.
👉 The buyer pays a premium for this right.
🔸 Scenario (Option Contract)
- You pay $5 (premium)
- You get the right to buy a stock at $100 (strike price) in the future
👉 You can choose to:
- Use the option if it is profitable ✅
- Ignore it if it is not ❌
🔹 What is Strike Price?
The strike price is the fixed price at which you can:
- Buy (call option), or
- Sell (put option)
👉 It is agreed at the beginning of the contract
🔹 What is a Premium?
A premium is the fee paid to buy the option contract.
- Paid by the buyer
- Received by the seller
- It is non-refundable
👉 It is the cost of having flexibility and choice
🔹 What is a Call Option?
A call option gives the right to buy an asset at the strike price.
🔸 Scenario (Call Option)
- Strike price = $100
- Premium = $5
👉 If market price rises to $120:
- Buy at $100
- Sell at $120
- Profit = $20 − $5 = $15
👉 If market price falls to $90:
- Do not use the option
- Loss = $5 (premium)
🔹 What is a Put Option?
A put option gives the right to sell an asset at the strike price.
🔸 Scenario (Put Option)
- Strike price = $100
- Premium = $5
👉 If market price falls to $80:
- Buy at $80
- Sell at $100
- Profit = $20 − $5 = $15
👉 If market price rises to $120:
- Do not use the option
- Loss = $5 (premium)
🔹 Key Points (Note Form)
- Option contract → Right, not obligation
- Strike price → Fixed agreed price
- Premium → Cost paid for the option
- Call option → Profit when price goes up 📈
- Put option → Profit when price goes down 📉
🔹 Simple Summary
- Option = choice with a cost (premium)
- Call = right to buy
- Put = right to sell
- Strike price = agreed price
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