“Option gives the option-holder the right, but creates an obligation for the option-seller.” Explain in light of the call option and put the option with an example

 That statement is correct. Options provide the option holder (buyer) with the right to buy (call option) or sell (put option) an underlying asset at a specified price within a certain period. On the other hand, the option seller (writer) has the obligation to fulfill the terms of the option contract if the option holder decides to exercise their right.

 Let's explain this further using examples of call options and put options:

1.     Call Option: Suppose Investor A purchases a call option on Company XYZ stock. The call option contract specifies that Investor A has the right to buy 100 shares of Company XYZ at a strike price of $50 per share within the next three months. Investor B is the option seller/writer who has sold this call option to Investor A.

·        Option Holder (Investor A): Investor A holds the call option and has the right to exercise it or let it expire. If the price of Company XYZ's stock rises above $50 within the specified period, Investor A can exercise the call option and buy the shares at the predetermined strike price of $50 per share.

·        Option Seller (Investor B): Investor B has the obligation to sell the 100 shares of Company XYZ to Investor A at the strike price of $50 per share if Investor A decides to exercise the call option.

So, in this case, the option holder (Investor A) has the right to buy the shares, while the option seller (Investor B) has the obligation to sell the shares if the option is exercised.

 2.     Put Option: Let's consider another example where Investor C purchases a put option on Company ABC stock. The put option contract states that Investor C has the right to sell 100 shares of Company ABC at a strike price of $70 per share within the next two months. Investor D is the option seller/writer.

·  Option Holder (Investor C): Investor C holds the put option and has the right to exercise it or let it expire. If the price of Company ABC's stock falls below $70 within the specified period, Investor C can exercise the put option and sell the shares at the predetermined strike price of $70 per share.

 ·   Option Seller (Investor D): Investor D has the obligation to buy the 100 shares of Company ABC from Investor C at the strike price of $70 per share if Investor C decides to exercise the put option.

 In this case, the option holder (Investor C) has the right to sell the shares, while the option seller (Investor D) has the obligation to buy the shares if the option is exercised.

These examples illustrate how call options and put options work. Call options give the option holder the right to buy an asset while creating an obligation for the option seller to sell the asset if the option is exercised. Put options give the option holder the right to sell an asset while creating an obligation for the option seller to buy the asset if the option is exercised.