Traders buying option contracts are called holders, while those who sell them are called writers. Strike price: a predetermined price of the asset at which it may be bought or sold according to the option contract Įxpiration date: the end date of the option contract. Premium: a price at which you can buy and sell options Before diving into options trading, you should learn some basic terms, including: Options meaning presupposes that you are not required to do anything and can even let the contract expire, without taking further action. a share or a commodity) actually work to smoothen market movements by allowing traders to hedge their positions. Others say, however, that these instruments - so named because they are “derived” from an underlying asset (e.g.

Periods of market volatility are sometimes blamed on the trading of options and other derivatives. If it is higher, the option-holder makes a profit. That means the investor or trader loses only the original cost of the option.

If the price is lower than it is today, the option can be allowed to expire. Put options allow traders to SELL the underlying asset at a specified price within a specified time period.Īn option is a future opportunity to buy an asset priced today. Options are a type of derivative.īased on the underlying securities, such as stocks, option contracts can be of two major types:Ĭall options allow traders to BUY the underlying asset at a specified price within a specified time period An option is a financial instrument giving the right, but not the obligation, to buy or sell an asset, such as a share or currency, for a predetermined price at a fixed future date.

Options definition