What is an Exchange Traded Option?
An Exchange Traded Option (ETO) is a financial instrument whose price is derived from another. It allows the trader to take a position in an underlying security to gain exposure to its movements. There are two types of ETOs: puts and calls. A “call” provides the owner the right but not the obligation to buy a parcel of shares in an underlying security at a pre-determined price (the exercise price) on, or before, a pre-determined date (the expiry date). A “put” provides the owner the right but not the obligation to sell a parcel of shares in an underlying security at a pre-determined price (the exercise price) on, or before, a pre-determined date (the expiry date).
