Monday, September 17, 2007

Option premium is a sunk cost

Book Value
Fundamentals of Options
Sunil K. Parameswaran
(www.tatamcgrawhill.com)

Options demystified

In an options contract, the buyer of the contract, also called the holder or the long, has a right, while the seller, also known as the writer or the short, has an obligation. Thus reads a snatch in Fundamentals of Options by Sunil K. Parameswaran ( www.tatamcgrawhill.com).

“The long has the freedom to decide as to whether or not he wishes to go through with the transaction, whereas the short has no choice but to carry out his part of the agreement if and when the holder chooses to exercise his right.”

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