Option (finance) - Wikipedia. In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlyingasset or instrument at a specific strike price on a specified date, depending on the form of the option. The strike price may be set by reference to the spot price (market price) of the underlying security or commodity on the day an option is taken out, or it may be fixed at a discount in a premium. The seller has the corresponding obligation to fulfill the transaction—to sell or buy—if the buyer (owner) .

An option that conveys to the owner the right to buy at a specific price is referred to as a call; an option that conveys the right of the owner to sell at a specific price is referred to as a put. Both are commonly used in and by the old traded, but the call option is more frequently discussed.

The seller may grant an option to a buyer as part of another transaction, such as a share issue or as part of an employee incentive scheme, otherwise a buyer would pay a premium to the seller for the option. A call option would normally be exercised only when the strike price is below the market value of the underlying asset, while a put option would normally be exercised only when the strike price is above the market value. When an option is exercised, the cost to the buyer of the asset acquired is the strike price plus the premium, if any. When the option expiration date passes without the option being exercised, then the option expires and the buyer would forfeit the premium to the seller. In any case, the premium is income to the seller, and normally a capital loss to the buyer. The owner of an option may on- sell the option to a third party in a secondary market, in either an over- the- counter transaction or on an options exchange, depending on the option.

The market price of an American- style option normally closely follows that of the underlying stock, being the difference between the market price of the stock and the strike price of the option. The actual market price of the option may vary depending on a number of factors, such as a significant option holder may need to sell the option as the expiry date is approaching and does not have the financial resources to exercise the option, or a buyer in the market is trying to amass a large option holding. The ownership of an option does not generally entitle the holder to any rights associated with the underlying asset, such as voting rights or any income from the underlying asset, such as a dividend. History. On a certain occasion, it was predicted that the season's olive harvest would be larger than usual, and during the off- season, he acquired the right to use a number of olive presses the following spring. When spring came and the olive harvest was larger than expected he exercised his options and then rented the presses out at a much higher price than he paid for his 'option'. Their exercise price was fixed at a rounded- off market price on the day or week that the option was bought, and the expiry date was generally three months after purchase.

Position Trading Option Strategies that uses options in combination are called Position Trading. A "Position" in trading terms simply means any trades that you have. Buying a call option —or making a “long call” trade— is a simple and straightforward strategy for.

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They were not traded in secondary markets. In the real estate market, call options have long been used to assemble large parcels of land from separate owners; e. Film or theatrical producers often buy the right — but not the obligation — to dramatize a specific book or script. Lines of credit give the potential borrower the right — but not the obligation — to borrow within a specified time period.

Many choices, or embedded options, have traditionally been included in bond contracts. For example, many bonds are convertible into common stock at the buyer's option, or may be called (bought back) at specified prices at the issuer's option. Mortgage borrowers have long had the option to repay the loan early, which corresponds to a callable bond option. Modern stock options. The Chicago Board Options Exchange was established in 1. Trading activity and academic interest has increased since then. Today, many options are created in a standardized form and traded through clearing houses on regulated options exchanges, while other over- the- counter options are written as bilateral, customized contracts between a single buyer and seller, one or both of which may be a dealer or market- maker.

Options are part of a larger class of financial instruments known as derivative products, or simply, derivatives. Option contracts may be quite complicated; however, at minimum, they usually contain the following specifications. B stock)the strike price, also known as the exercise price, which is the price at which the underlying transaction will occur upon exercisethe expiration date, or expiry, which is the last date the option can be exercisedthe settlement terms, for instance whether the writer must deliver the actual asset on exercise, or may simply tender the equivalent cash amountthe terms by which the option is quoted in the market to convert the quoted price into the actual premium – the total amount paid by the holder to the writer. Option trading. Exchange traded options have standardized contracts, and in the United States are settled through a clearing house with fulfillment guaranteed by the Options Clearing Corporation (OCC). Since the contracts are standardized, accurate pricing models are often available. To understand which option is being traded a standardised option naming convention has been developed by the exchanges, that shows the expiry month and strike price using special letter codes.

Exchange- traded options include. The terms of an OTC option are unrestricted and may be individually tailored to meet any business need. In general, the option writer is a well- capitalized institution (in order to prevent the credit risk). Option types commonly traded over the counter include: interest rate optionscurrency cross rate options, andoptions on swaps or swaptions.

By avoiding an exchange, users of OTC options can narrowly tailor the terms of the option contract to suit individual business requirements. In addition, OTC option transactions generally do not need to be advertised to the market and face little or no regulatory requirements. However, OTC counterparties must establish credit lines with each other, and conform to each other's clearing and settlement procedures. With few exceptions. These must either be exercised by the original grantee or allowed to expire.

Exchange trading. By publishing continuous, live markets for option prices, an exchange enables independent parties to engage in price discovery and execute transactions.

As an intermediary to both sides of the transaction, the benefits the exchange provides to the transaction include: fulfillment of the contract is backed by the credit of the exchange, which typically has the highest rating (AAA),counterparties remain anonymous,enforcement of market regulation to ensure fairness and transparency, andmaintenance of orderly markets, especially during fast trading conditions. Basic trades (American style). If they are combined with other positions, they can also be used in hedging. An option contract in US markets usually represents 1.

The cash outlay on the option is the premium. Bitdefender Internet Security 09 Keygen Music here. The trader would have no obligation to buy the stock, but only has the right to do so at or before the expiration date. The risk of loss would be limited to the premium paid, unlike the possible loss had the stock been bought outright. The holder of an American style call option can sell his option holding at any time until the expiration date, and would consider doing so when the stock's spot price is above the exercise price, especially if he expects the price of the option to drop.

By selling the option early in that situation, the trader can realise an immediate profit. Alternatively, he can exercise the option — for example, if there is no secondary market for the options — and then sell the stock, realising a profit.

Option Trading . The FOMC minutes this afternoon could provide a headwind. The Fed wants to tighten and they will start reducing the balance sheet in September. We might see a little nervous trading today, but stocks will gradually recover Thursday and Friday. Earnings season is winding down, the economic news is light, the Fed is in recess, politicians are on holiday and traders are taking time off. These are the summer doldrums and they will continue through Labor Day The next rally should hit resistance at.