Option

A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).


Call options give the option to buy at certain price, so the buyer would want the stock to go up.

Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

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.

In terms of speculation, option buyers and writers have conflicting views regarding the outlook on the performance of an underlying security.

For example, because the option writer will need to provide the underlying shares in the event that the stock's market price will exceed the strike, an option writer that sells a call option believes that the underlying stock's price will drop relative to the option's strike price during the life of the option, as that is how he or she will reap maximum profit.

This is exactly the opposite outlook of the option buyer. The buyer believes that the underlying stock will rise, because if this happens, the buyer will be able to acquire the stock for a lower price and then sell it for a profit.


Investment dictionary. . 2012.

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  • Option — Option …   Deutsch Wörterbuch

  • option — op·tion 1 / äp shən/ n 1: the power or right to choose; also: a choice made or available 2: a privilege of demanding fulfillment of a contract on any day within a specified time 3: a contract conveying in exchange for the payment of a premium a… …   Law dictionary

  • option — [ ɔpsjɔ̃ ] n. f. • v. 1190; lat. optio 1 ♦ Faculté, action d opter. ⇒ choix. « La nécessité de l option me fut toujours intolérable » (A. Gide). « Ou pendus, ou noyés, nous n avions pas d autre option » (Hugo). ⇒ 1. alternative. Matières, textes… …   Encyclopédie Universelle

  • Option — Op tion, n. [L. optio; akin to optare to choose, wish, optimus best, and perh. to E. apt: cf. F. option.] 1. The power of choosing; the right of choice or election; an alternative. [1913 Webster] There is an option left to the United States of… …   The Collaborative International Dictionary of English

  • Option — may refer to Contents 1 Legal rights 2 Sport 3 Computing 4 Publications 5 History …   Wikipedia

  • Option N.V. — Option N.V. Industry Telecommunications, Wireless technology Founded Leuven, Belgium (1986) Headquarters Leuven, Belgium Key people Jan Callewaert, Founder in 1986 current CEO …   Wikipedia

  • Option 30 — Studio album by Option 30 Released 1997 Recorded 1983 1984 Genre New Wave …   Wikipedia

  • Option — (lat. optio „freier Wille“) bezeichnet eine Wahlmöglichkeit, siehe Alternative in der Wirtschaft ein Kauf bzw. Verkaufsrecht, siehe Option (Wirtschaft) in der Informatik eine Einstellung oder Parameter, siehe Parameter (Informatik) ein nach… …   Deutsch Wikipedia

  • Option — Sf Möglichkeit, Vorkaufsrecht per. Wortschatz fach. (20. Jh.) Entlehnung. Entlehnt aus l. optio ( ōnis) freier Wille, freie Wahl, Belieben .    Ebenso nndl. optie, ne. option, nfrz. option, nschw. option, nnorw. opsjon; adoptieren. lateinisch l …   Etymologisches Wörterbuch der deutschen sprache

  • option — Option. s. f. v. Pouvoir, faculté d opter. Cela est, cela n est pas à vostre option. je laisse cela à vostre option. je vous donne l option de ces deux choses là …   Dictionnaire de l'Académie française

  • option — [äp′shən] n. [Fr < L optio < optare, to wish, desire, ult. < IE * op , to choose, prefer] 1. the act of choosing; choice 2. the power, right, or liberty of choosing 3. a) something that is or can be chosen; choice b) an optional item… …   English World dictionary

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