What is an option in your own words,
An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike priceprior to the expiration date.
Jan 9, PM EST TheStreet When the market is volatile, as it has been recently, investors may need to re-evaluate their strategies when picking investments. While buying or holding long stock positions in the market can potentially lead to long-term profits, options are a great way to control a large chunk of shares without having to put up the capital necessary to own shares of bigger stocks - and, can actually help hedge or protect your stock investments. In fact, having the option to sell shares at a set price, even if the market price drastically decreases, can be a huge relief to investors - not to mention a profit-generating opportunity.
The two types of contracts are put and call options, both of which can be purchased to speculate on the direction of stocks or stock indices, or sold to generate income. For stock options, a single contract covers shares of the underlying stock.
- Stock Options Explained in Plain English | Finance - Zacks
- And, well, consider options.
The Basics of an Options Contract In general, call options can be purchased as a leveraged bet on the appreciation of a stock or index, while put options are purchased to profit from price declines. The buyer of a call option has the right but not the obligation to buy the number of shares covered in the contract at the strike price.
- Writing an option refers to an investment contract in which a fee, or premiumis paid to the writer in exchange for the right to buy or sell shares at a future price and date.
- Minimum deposits of binary options
Put buyers have the right but not the obligation to sell shares at the strike price in the contract. Option sellers, on the other hand, are obligated to transact their side of the trade if a buyer decides to execute a call option to buy binary options like underlying security or execute a put option to sell.
Options are generally used for hedging purposes but can be used for speculation. That is, options generally cost a fraction of what the underlying shares would.
Using options what is an option in your own words a form of leverage, allowing an investor to make a bet on a stock without having to purchase or sell the shares outright. Call Option Contracts The terms of an option contract specify the underlying security, the price at which that security can be transacted strike price and the expiration date of the contract.
A standard contract covers shares, but the share amount may be adjusted for stock splits, special dividends or mergers. In a call option transaction, a position is opened when a contract or contracts are purchased from the seller, also referred to as a writer.
In the transaction, the seller is paid a premium to assume the obligation of selling shares at the strike price. If the seller holds the shares to be sold, the position is referred to as a covered call. Put Options Buyers of put options are speculating on price declines of the underlying stock or index and own the right to sell shares at the strike price of the contract.
If the share price drops below the strike price prior to expiration, the buyer can either assign shares to the seller for purchase at the strike price or sell the contract if shares are not held in the portfolio. Key Takeaways An options contract is an agreement between two parties to facilitate a potential transaction involving an asset at a preset price and date. Call options can be purchased as a leveraged bet on the appreciation of an asset, while put options are purchased to profit from price declines.
How to Hold a Call Option Stock options explained in simple terms are financial instruments that let you buy or sell a specific stock at a specific price at a specific time. You can buy and sell them through a brokerage, provided your account is approved for options trading, but keep in mind that options trading can be risky depending on the transactions you make. You may also receive or be able to buy stock options through your employer as part of your compensation.
Buying an option offers the right, but not the obligation to purchase or sell the underlying asset. The call-buyer can also sell the options if purchasing the shares is not the desired outcome.