Equity Options consist of basically Call Options and Put Options-
Imagine Deutche Bank DB is selling at $60 per share today May 22nd.
Call options gives us the right to buy a stock at a specific price and a specific time.
DB call to buy @ 65 is selling for $1.65 expires on June 18th, 2010.
Put Options gives us the right to sell a stock at a specific price and at a specific time
DB puts to sell @ 55 is selling at $2.55 expires on June 18th, 2010.
Let us go back and look at various usages of options-
1. Buy Insurance on your portfolio.
2. Sell Insurance for the portfolio.
3. Speculate on movement of the stock with very less cash on hand.