The option derivative is a financial derivative which is sold by an option writer to an option buyer, they are typically purchased through online brokers and retail brokers this option contract gives the buyer the right but there is not an obligation on him to buy or sell the underlying asset or stock at a price agreed and for a certain amount of time the agreed price is known as strike price where strike price is the price at which the option contract is exercised option is a versatile security in which trader buy options to speculate holdings.
There are two types of options call option and put option in call option in which the buyer purchases the security at a strike price in which the buyer wants the share he has purchased to go up the option writer gives the underlying security to the option buyer, at this strike price, is the event that the market price of the stock increases. If the buyer is correct about the price the price increases the buyer can acquire the stock at the price he has assumed.
Then there is put option which provides the buyer the right to sell the share at the strike price so the put buyer wants the stock or share to go down this is very much true for a put buyer a put option buyer has a benefit from the sudden falling of stock price below the strike price if the price of the stock falls below the strike price of the stock the put option is then obligated to purchase the shares at the given strike price.
Risk factor for options traders arises if the price of the share falls which they have to buy at the strike price there are some investors who write put options at strike prices where they want to buy the share. If the price falls they can buy the stock because the option buyer will have to exercise in the option. The trader gets the share at the price they want, with the added benefit of getting the option.