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- DictionaryOp·tion/ˈäpSH(ə)n/
noun
- 1. a thing that is or may be chosen: "choose the cheapest options for supplying energy"
- 2. an offensive play in which the ball carrier has the option to run, pass, hand off, or lateral.
verb
- 1. buy or sell an option on (something): "his second script will have been optioned by the time you read this"
People also ask
What is a call option?
What is an option contract?
What is option noun?
What is an option in business?
Learn the various meanings and uses of the word option as a noun and a verb, with synonyms, examples, and word history. Find out how option relates to finance, insurance, law, and football.
Learn the meaning of option as a noun in different contexts, such as choice, finance, business, and IT. See how to use option in sentences and idioms with examples from the Cambridge Dictionary.
noun. the act or an instance of choosing or deciding. the power or liberty to choose. an exclusive opportunity, usually for a limited period, to buy something at a future date. he has a six-month option on the Canadian rights to this book.
- What Is An Option?
- Understanding Options
- Types of Options
- Special Considerations
- Options Risk Metrics: The Greeks
- Advantages and Disadvantages of Options
- Example of An Option
- The Bottom Line
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The term option refers to a financial instrument that is based on the value of underlying securities such as stocks, indexes, and exchange traded funds (ETFs). An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sel...
Options are versatile financial products. These contracts involve a buyer and seller, where the buyer pays a premium for the rights granted by the contract. Call options allow the holder to buy the asset at a stated price within a specific time frame. Put options, on the other hand, allow the holder to sell the asset at a stated price within a spec...
Calls
A call option gives the holder the right, but not the obligation, to buy the underlying security at the strike price on or before expiration. A call option will therefore become more valuable as the underlying security rises in price (calls have a positive delta). A long call can be used to speculate on the price of the underlying rising, since it has unlimited upside potential but the maximum loss is the premium (price) paid for the option.
Puts
Opposite to call options, a put gives the holder the right, but not the obligation, to instead sell the underlying stock at the strike price on or before expiration. A long put, therefore, is a short position in the underlying security, since the put gains value as the underlying's price falls (they have a negative delta). Protective putscan be purchased as a sort of insurance, providing a price floor for investors to hedge their positions.
American vs. European Options
American options can be exercised at any time between the date of purchase and the expiration date. European optionsare different from American options in that they can only be exercised at the end of their lives on their expiration date. The distinction between American and European optionshas nothing to do with geography, only with early exercise. Many options on stock indexes are of the European type. Because the right to exercise early has some value, an American option typically carries...
Options contracts usually represent 100 shares of the underlying security. The buyer pays a premium fee for each contract. For example, if an option has a premium of 35 cents per contract, buying one option costs $35 ($0.35 x 100 = $35). The premium is partially based on the strikeprice or the price for buying or selling the security until the expi...
The options market uses the term the "Greeks" to describe the different dimensions of risk involved in taking an options position, either in a particular option or a portfolio. These variables are called Greeks because they are typically associated with Greek symbols. Each risk variable is a result of an imperfect assumption or relationship of the ...
Buying Call Options
As mentioned earlier, call options allow the holder to buy an underlying security at the stated strike price by the expiration date called the expiry. The holder has no obligation to buy the asset if they do not want to purchase the asset. The risk to the buyer is limited to the premium paid. Fluctuations of the underlying stock have no impact. Buyers are bullish on a stock and believe the share price will rise above the strike price before the option expires. If the investor's bullish outloo...
Selling Call Options
Selling call options is known as writing a contract. The writer receives the premium fee. In other words, a buyer pays the premium to the writer (or seller) of an option. The maximum profit is the premium received when selling the option. An investor who sells a call option is bearish and believes the underlying stock's price will fall or remain relatively close to the option's strike price during the life of the option. If the prevailing market share price is at or below the strike price by...
Buying Put Options
Put options are investments where the buyer believes the underlying stock's market price will fall below the strike price on or before the expiration date of the option. Once again, the holder can sell shares without the obligation to sell at the stated strike per share price by the stated date. Since buyers of put options want the stock price to decrease, the put option is profitable when the underlying stock's price is below the strike price. If the prevailing market price is less than the...
Suppose that Microsoft (MFST) shares trade at $108 per share and you believe they will increase in value. You decide to buy a call option to benefit from an increase in the stock's price. You purchase one call option with a strike price of $115 for one month in the future for 37 cents per contract. Your total cash outlay is $37 for the position plu...
Options are a type of derivative product that allow investors to speculate on or hedge against the volatility of an underlying stock. Options are divided into call options, which allow buyers to profit if the price of the stock increases, and put options, in which the buyer profits if the price of the stock declines. Investors can also go short an ...
Options are financial derivatives that give buyers the right to buy or sell an underlying asset at a specified price and date. Learn about call and put options, American and European options, options spreads, and the Greeks (risk metrics) of options.
2 days ago · Learn the meaning of option as a noun and a verb, with synonyms, pronunciation, and usage examples. Find out how option is used in business, finance, accounting, and football.
Learn the meaning, pronunciation and usage of the word option as a noun in English. Find out the different types and contexts of option, such as choice, right, subject, share and computing.
Definitions of option. noun. one of a number of things from which only one can be chosen. “what option did I have?” synonyms: alternative, choice. see more. noun. the act of choosing or selecting. synonyms: choice, pick, selection. see more. noun.
