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KembaraXtra – Islamic Derivatives: Types of Financial Contracts in Options
🔹 1. Call Option Contract
👉 A call option is a contract that gives the buyer the right to buy an asset at a fixed price.
🔸 Key Features
🔸 Example
🔹 2. Put Option Contract
👉 A put option is a contract that gives the buyer the right to sell an asset at a fixed price.
🔸 Key Features
🔸 Example
🔹 3. Stand-Alone Option Contract
👉 Options traded independently in the market
🔸 Features
🔹 4. Embedded Option Contract
👉 Options built into another financial contract
🔸 Features
🔹 5. American vs European Options
👉 Based on exercise timing
🔸 American Option
🔸 European Option
🔹 6. Cash-Settled vs Physically Settled Options
👉 Based on settlement method
🔸 Cash-Settled
🔸 Physical Delivery
🔹 Simple Summary
Types of option contracts include:
🔹 1. Call Option Contract
👉 A call option is a contract that gives the buyer the right to buy an asset at a fixed price.
🔸 Key Features
- Right to buy
- Expect price to increase 📈
- Pay premium
🔸 Example
- Right to buy palm oil at RM4,000
- If price rises → profit
🔹 2. Put Option Contract
👉 A put option is a contract that gives the buyer the right to sell an asset at a fixed price.
🔸 Key Features
- Right to sell
- Expect price to decrease 📉
- Pay premium
🔸 Example
- Right to sell palm oil at RM4,000
- If price falls → profit
🔹 3. Stand-Alone Option Contract
👉 Options traded independently in the market
🔸 Features
- Separate contract
- Premium paid separately
- Used for trading/speculation
🔹 4. Embedded Option Contract
👉 Options built into another financial contract
🔸 Features
- Not traded separately
- Cost included in product
- Used in:
- Financing
- Lease
- Investment products
🔹 5. American vs European Options
👉 Based on exercise timing
🔸 American Option
- Can exercise anytime before expiry
🔸 European Option
- Can exercise only at expiry
🔹 6. Cash-Settled vs Physically Settled Options
👉 Based on settlement method
🔸 Cash-Settled
- Only pay price difference
- No asset exchange
🔸 Physical Delivery
- Actual buy/sell of asset
🔹 Simple Summary
Types of option contracts include:
- Call option → right to buy
- Put option → right to sell
- Stand-alone → traded separately
- Embedded → built into contract
- American/European → timing
- Cash/Physical → settlement
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