Posted in Finance, Accounting and Economics Terms, Total Reads: 510

Definition: Option

An option is a contract, where the seller gives buyer the right (and not the obligation) to buy or sell the stock/commodity/currency at a specified price for a particular period of time.

The value of options is based on the underlying investments, thus they have a derivative nature. Options are transacted on securities markets among institutional and individual investors, and traders and transactions can be for one contract or more. An option expires if not exercised in the time period. Options are generally used as leverage or as protection against market fluctuations.


-          Option writer: One who sells the contract

-          Option buyer: One who buys the contract

-          Call Option: It gives buyer the option to buy the stock and he anticipates the stock price to go up

-          Put Option: It gives buyer the option to sell the stock and he wants the stock price to go down



Put XYZ $100 July

-          Call/Put:                       Put

-          Symbol:                         XYZ

-          Number of Shares:          1 contract (100 shares)

-          Strike Price:                  $100

-          Expiration Date:            July


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