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Options : It is the right but not the obligation to buy the shares at a predetermined price. Options are of two types : Call Option and Put Option. In Call option the holder has the right to buy the share at a specified price but it is not his obligation to buy the share. In put option you have the obligation to sell the share at a specified price.

Example : I enter into a Call option for a share at say Rs.1000.00 to buy a share on 20.01.2008. The option expires on 20.02.2008. Now I pay some premium say Rs.20.00 for this. Now if the price of the share rises above Rs.1000.00 then I can exercise my option and make profit. However if the price of the share does not increases but say decrease to Rs.960.00 then I will not exercise my option. It is not compulsory for one person to exercise option. However the premium already paid is the cost one has to bear.