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Option

Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Investors, not companies, issue options. Buyers of call options bet that a stock will be worth more than the price set by the option (the strike price), plus the price they pay for the option itself. Buyers of put options bet that the stock's price will drop below the price set by the option. An option is part of a class of securities called derivatives, which means these securities derive their value from the worth of an underlying investment.

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option

1. A contract that permits the owner, depending on the type of option held, to purchase or sell an asset at a fixed price until a specific date. An option to purchase an asset is a call and an option to sell an asset is a put. Depending on how an investor uses options, the risks can be quite high. Investors in options must be correct on timing as well as on valuation of the underlying asset to be successful. See also Asian option, chooser option, combination option, conventional option, European option, exercise price, exotic option, expiration date, knock-out option, lapsed option, long-term equity anticipation securities, restricted option, stock option.

2. See incentive stock option.

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Option

A contract in which the writer (seller) promises that the contract buyer has the right, but not the obligation, to buy or sell a certain security at a certain price (the strike price) on or before a certain expiration date, or exercise date. The asset in the contract is referred to as the underlying asset, or simply the underlying. An option giving the buyer the right to buy at a certain price is called a call, while one that gives him/her the right to sell is called a put.

Options contracts are used both in speculative investments, in which the option holder believes he/she can secure a price much higher (or lower) than the fair market value of the underlying on the expiration date. For example, one may purchase a call option to buy corn at a low price, expecting the price of corn to rise significantly by the time the option is exercised. The investors may then buy the corn at the agreed-upon low price and instantly resell it for a tidy profit. Cases in which the option holder is correct are called in the money options, while cases in which the market moves in the opposite direction of the speculation are called out of the money. Like all speculative investing, this is a risky venture.

Other investors use option contracts for a completely different purpose: to hedge against market movements that would cause their other investments to lose money. For example, the same corn investor may buy the commodity at fair market value with the hope of the price rising. He/she may then buy a put contract at a high price in case the price of corn declines. This will limit his/her risk: if the price of corn falls, the investor has the option to sell at a high price, and, if the price of corn rises (especially higher than the strike price of the option), then he/she will choose not to exercise the option. See also: Futures, Forward Sales.

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Option. Buying an option gives you the right to buy or sell a specific financial instrument at a specific price, called the strike price, during a preset period of time.

In the United States, you can buy or sell listed options on individual stocks, stock indexes, futures contracts, currencies, and debt securities.

If you buy an option to buy, which is known as a call, you pay a one-time premium that's a fraction of the cost of buying the underlying instrument.

For example, when a particular stock is trading at $75 a share, you might buy a call option giving you the right to buy 100 shares of that stock at a strike price of $80 a share. If the price goes higher than the strike price, you can exercise the option and buy the stock at the strike price, or sell the option, potentially at a net profit.

If the stock price doesn't go higher than the strike price before the option expires, you don't exercise. Your only cost is the money that you paid for the premium.

Similarly, you may buy a put option, which gives you the right to sell the underlying instrument at the strike price. In this case, you may exercise the option or sell it at a potential profit if the market price drops below the strike price.

In contrast, if you sell a put or call option, you collect a premium and must be prepared to deliver (in the case of a call) or purchase (in the case of a put) the underlying instrument. That will happen if the investor who holds the option decides to exercise it and you're assigned to fulfill the obligation. To neutralize your obligation to fulfill the terms of the contract before an option you sold is exercised, you may choose to buy an offsetting option.

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option

The right to purchase or lease property for an agreed-upon price.The person who owns the property is called the optionor and is the one who grants the option.The recipient is called the optionee.The optionee has the right to take advantage of the opportunity, but does not have the obligation to do so.

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Option

What Does Option Mean?

A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or another financial asset at an agreed-on price (the strike price) during a certain period or on a specific date (excercise date).

Investopedia explains Option

Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, whereas hedgers use options to reduce the risk of holding an asset. In terms of speculation, option buyers and writers have opposite views on the direction of the underlying security. For example, because the option writer will need to provide the underlying shares if the stock's market price will exceed the strike price, an option writer that sells a call option believes that the underlying stock's price will drop relative to the option's strike price during the life of the option, as that is how he or she will reap maximum profit. This is exactly the opposite to the outlook of the option buyer. The buyer believes that the underlying stock will rise, because if this happens, the buyer will be able to acquire the stock for a lower price and then sell it for a profit.

Related Terms:
• Call
• Derivative
• Intrinsic Value
• Maturity
• Put

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Option

An agreement to buy or sell property on or before a specified date at an established price. The sale or exchange of an option to buy or sell property results in capital gain or loss if the property is a capital asset.