1.Call and Put options

A call option gives its holder the right to purchase an asset for a specified price, called the exercise, or strike price, on or before some specified expiration date.

A put option gives its holder the right to sell an asset for a specified exercise or strike price on or before some expiration date.

The basic trades of options are: long call, long put and short call, short put.

Longs are when we buy the right, and shorts are when we sell the right (so we have an obligation to the options buyer). So :

long call is the right to buy an asset at a determined price

the long put is the right to sell an asset -//-,

the short call is an obligation to sell an asset -//-,

the short put is an obligation to buy an asset-//-

2.Exchange-traded or Over-the-counter (otc) options

Exchange-traded-are those derivatives instruments that are traded via specialized exchanges or other exchanges (Chicago Board Options Exchange, EUREX, Korea Exchange);Exchange-traded options include^: stock options, bond options and other interest rate options, stock market index options or, simply, index options and options on futures contracts, callable bull/bear contract.

Over-the-counter- are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary.

3.Another important classes of options are:

Employee stock options, which are awarded by a company to their employees as a form of incentive compensation;

Real estate options are often used to assemble large parcels of land; Prepayment options are usually included in mortgage loans; European option – an option that may only be exercised on expiration. American option – an option that may be exercised on any trading day on or before expiry. Bermudan option – an option that may be exercised only on specified dates on or before expiration.

Barrier option – any option with the general characteristic that the underlying security's price must pass a certain level or "barrier" before it can be exercised.

Exotic option – any of a broad category of options that may include complex financial structures.

Vanilla option – any option that is not exotic;

The following strategies exist:

1. Protective put-when investing in some stocks at the same time the Put option is bought, so it gives the right to sell the stock at a given price. It is an insurance for the case of stock price decline;

2. Covered calls- in which a trader buys a stock (or holds a previously-purchased long stock position), and sells a call. If the stock price rises above the exercise price, the call will be exercised and the trader will get a fixed profit. If the stock price falls, the call will not be exercised, and any loss incurred to the trader will be partially offset by the premium received from selling the call. Overall, the payoffs match the payoffs from selling a put.

3. A straddle is established by buying both a call and a put on a stock, each with the same exercise price, X, and the same expiration date, T. Straddles are useful strategies for investors who believe a stock will move a lot in price but are uncertain about the direction of the move. Strips and straps are variations of straddles. A strip is two puts and one call on a security with the same exercise price and maturity date. A strap is two calls and one put.

4. A Spread is a combination of two or more call options (or two or more puts) on the same stock with differing exercise prices or times to maturity. Some options are bought, whereas others are sold, or written. A money spread involves the purchase of one option and the simultaneous sale of another with a different exercise price. A time spread refers to the sale and purchase of options with differing expiration dates.