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KembaraXtra – Islamic Derivatives: Option Contracts (Call & Put) – Simplified Explanation with Examples
🔹 What is an Option Contract?
An option contract gives the buyer the right (but not obligation) to:
a specific asset at a fixed price (strike price) on or before a future date.
👉 To get this right, the buyer must pay a premium to the seller.
🔹 Key Features
🔹 Call Option (Right to Buy)
👉 A call option allows the buyer to buy an asset at a fixed price in the future
🔸 Case Example (Simplified)
📅 If Price Increases to RM130
👉 Profit = RM30 − RM5 = RM25 ✅
📅 If Price Decreases to RM90
👉 Loss = RM5 (premium only) ❌
🔹 Put Option (Right to Sell)
👉 A put option allows the buyer to sell an asset at a fixed price in the future
🔸 Case Example (Simplified)
📅 If Price Decreases to RM70
👉 Profit = RM30 − RM5 = RM25 ✅
📅 If Price Increases to RM120
👉 Loss = RM5 (premium only) ❌
🔹 Key Insight
🔹 Why Options Are Attractive
🔹 Simple Summary
🔹 What is an Option Contract?
An option contract gives the buyer the right (but not obligation) to:
- Buy, or
- Sell
a specific asset at a fixed price (strike price) on or before a future date.
👉 To get this right, the buyer must pay a premium to the seller.
🔹 Key Features
- Buyer has a choice (not forced to act)
- Seller has an obligation if buyer exercises
- Loss for buyer is limited to premium only
🔹 Call Option (Right to Buy)
👉 A call option allows the buyer to buy an asset at a fixed price in the future
🔸 Case Example (Simplified)
- A expects stock price to increase
- Strike price = RM100
- Premium = RM5
📅 If Price Increases to RM130
- A uses the option
- Buys at RM100
- Market value = RM130
👉 Profit = RM30 − RM5 = RM25 ✅
📅 If Price Decreases to RM90
- A does not exercise the option
👉 Loss = RM5 (premium only) ❌
🔹 Put Option (Right to Sell)
👉 A put option allows the buyer to sell an asset at a fixed price in the future
🔸 Case Example (Simplified)
- B expects stock price to decrease
- Strike price = RM100
- Premium = RM5
📅 If Price Decreases to RM70
- B buys at RM70
- Sells at RM100
👉 Profit = RM30 − RM5 = RM25 ✅
📅 If Price Increases to RM120
- B does not exercise the option
👉 Loss = RM5 (premium only) ❌
🔹 Key Insight
- Call option → profit when price goes up 📈
- Put option → profit when price goes down 📉
- Buyer can walk away if not profitable
🔹 Why Options Are Attractive
- Limited loss (premium only)
- Potential for profit
- Flexibility (right without obligation)
🔹 Simple Summary
- Option = right without obligation
- Premium = cost of that right
- Call = right to buy
- Put = right to sell
- Loss limited to premium
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