'Companies can also restructure their capital through derivatives and options as the means of raising funds'. Explain the term 'option'. What are the different types of options? Define the term 'derivative' as provided u

Option is a derivative contract. An option gives the holder the right but not the obligation to buy or sell something in the future. There are two types of Options:- Put option - is one which gives holder the right to sell particular number of shares (or any other commodity) at a given price and typically one buys put options, if the price of the stock is expected to decline. Call option - gives the holder the right to buy the shares at a predetermined period of time and at a predetermined price. Typically, one buys call options if the price of the underlying stock is expected to rise. The term derivative has been defined under section 2(ac) in Securities Contracts (Regulation) Act, 1956 as follows: a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; a contract which derives its value from the prices, or index of prices, of underlying securities. commodity derivatives; and such other instruments as may be declared by the Central Government to be derivatives;