How do options work?

[proton91]

Hi guys

If I purchase a call option at $20 and would like to exercise this option when the share rises to $25:

Question
1) I understand the individual who will fulfil this call option is the original party who sold this call option to me. Who is this party typically? Are they individual investors as well?

2) I understand I can either choose to purchase the stock at the strike price, or sell the call option to someone else. If I sell the call option to someone else, how does it work? How is the price of selling the call option determined?

Sorry that these are newbie questions. Still in the process of learning and not planning to buy any options yet.

 

[ashethen]

1) can be retail traders, institutional traders or market makers

2) sell options just click sell. Like how you buy the options. If you meant how to exercise, then you've to check with your broker on how to do it

price of options depends on its intrinsic value and extrinsic value.
intrinsic value is stock price - options strike price (zero if negative)
extrinsic value depends on the time left to expiry, implied volatility, gamma

Posted from PCWX using SM-N960F

 

[Mr. Wood]

to buy stock at strike price, click exercise button.
to sell (as in close trade), click close button.

 

[proton91]

Thanks all!