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Option

A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date.

Notes:

Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

See also: American Option, Call, Derivative, Embedded Option, Employee Stock Option (ESO), European Option, Index Option, Intrinsic Value, LEAPS, Leverage, Max Pain, Option Chain, Options Contract, Put, Spread, Strike Price, Time Value, Writer

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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 (LEAPS), restricted option, stock option.

2. See incentive stock option.