What are Options?
Options - Glossary Definition
(1) An agreement that conveys the right, but not the obligation, to buy (receive) or sell (deliver) a specific property at a stipulated price and within a stated period of time.
(2) An agreement that gives the buyer the right, but not the obligation, to buy or sell a security at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase call options bet the stock will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of put options bet the stock's price will go down below the price set by the option.
An option is part of a class of securities called derivatives, so named because these securities derive their value from the worth of an underlying investment. A call is an option contract to buy (from the writer of the call) shares of stock at a stated price, expiring on the stated date. A put is an option contract to sell shares of stock at a stated price, expiring on a stated date.
Options may be traded on the Chicago Board Options Exchange (CBOE), thereby providing standardization of securities option contracts and trading practices.
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