What is at risk is simply the premia paid for taking the option. Options are deferred delivery contracts, that give the buyer the right, but not the obligation, to buy or sell, a specified underlying security, at a set price, on or before a specified date. Sebi has said that it intends to allow American type of options and not the European type. The difference between the two is that the American option can be exercised at any time on or before the expiration date while the European option can be exercised only on the expiration date. We give below few terminologies, which would be frequently used in the context of stock options.
Option premium is the price paid by the buyer to acquire the right to exercise the option.
Strike price or exercise price is the price at which the underlying security may be purchased. Expiration date is the last date for exercising the option. Exercise date is the date on which the option is actually exercised. Call option is the option to buy a security at a set price at a later date. Put option is the option to sell a security at a set price at a later date.