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Option

• A marketable security contract that fixes the purchase price of some other security at a point in time.

• 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. 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.

• An instrument that provides its holder with an opportunity to purchase or sell a specified asset at a stated price on or before a set expiration date.

• (1) Call option: A contract sold for a price that gives the holder the right to buy from the writer of the option, over a specified period, a specified amount of securities at a specified price.
(2) Put option: A contract sold for a price that gives the holder the right to sell to the writer of the contract, over a specified period, specified amount of securities at a specified price.

• A security that represents the right to buy or sell a specified amount of an underlying stock, bond, futures contract, etc. at a specified price within a specified time. The purchaser acquires a right, and the seller assumes an obligation.

• Is a derivative contract. There are two primary types of options. See Put and Call. An option is considered as a Wasting Asset because it has a stipulated life to expiration and may expire worthless. Hence, the premium would be wasted.

 
 

Follow this link for all the terms related to option.

 
 Embedded terms in definition
 Asset
Bet
Bond
Buy
Call option
Call
Class
Contract
Derivatives
Derivative
Expiration date
Expiration
Futures contract
Futures
Go
Issue
Its
Options
Plus
Point
Premium
Purchase
Put option
Put
Right
Securities
Security
Sell
Stock
Strike price
Time
Underlying
Wasting asset
Will
Writer
 
 Referenced Terms
 Abandon: Refers to the decision not to exercise an Option or, sometimes, a clause. It may also refer to the intentional or unintentional lack of use, maintenance or affirmation process about assets. These assets may include securities, bank accounts, refunds, trademarks and so on. In such cases the property can go to a jurisdiction such as a state or federal government.

 Abandonment option: The Option of terminating an investment earlier than originally planned.

 American option: An Option that may be exercised at any time up to and including the expiration date. Related: European optionAn Option that may be exercised at any time during the life of the option. Stock options that trade in U.S. option exchanges, such as the CBOE, are of American types. Index options are of either American (option on S&P100 index, called OEX) or European types (option on S&P500 index, called SPX). See call and put options.

 American option: An Option that may be exercised at any time up to and including the expiration date. Related: European optionAn Option that may be exercised at any time during the life of the option. Stock options that trade in U.S. option exchanges, such as the CBOE, are of American types. Index options are of either American (option on S&P100 index, called OEX) or European types (option on S&P500 index, called SPX). See call and put options.

 American style option: Is an Option which permits exercise prior to the indicated expiration date. This compares to an European Style option which can only be exercised on the expiration date.An Option contract that can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

 
 Related Terms
 
Abandonment option
American option
American style option
Annuity form or option
Arbitrage free option pricing models
Asian option
Bargain purchase price option
Binary option
Binomial option pricing model
Black option model
Black scholes option model
Black scholes option pricing model
Butterfly option spread
Call an option
Call option
Compound option
Covered or hedge option strategies
Currency option
Delta hedge of an option
Delta of an option
Doubling option
Down and in option
Down and out option
Elasticity of an option
Embedded option
European option
European style option
Exercise or option price
Exercising the option
Explicit option
Foreign currency option
Futures option
Gamma of an option
Garmen kohlhagen option pricing model
Greenshoe option
Ho lee option model
Implicit option
In the money option
Index and option market
Index option
Intrinsic value of an option
Irrational call option
Liquid yield option note
Lookback option
Multi option financing facility
Naked option
Naked option position
Naked option strategies
Option adjusted duration
Option adjusted spread
Option adjusted spread model
Option elasticity
Option models
Option not to deliver
Option premium
Option price
Option seller
Option trading strategies
Option type
Option writer
Out of the money option
Path dependent option
Postponement option
Prepayment option
Put an option
Put option
Quality option
Rho of an option
Seller's option
Short option minimum charge
Split fee option
Stock index option
Stock option
Swap option
Tax deferral option
Tax timing option
Time value of an option
Timing option
Two state option pricing model
Virtual currency option
Wild card option
Yield curve option pricing models
Yield to call, option or event date

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