Option

Option The right of choice, bought at a price called premium, to buy or sell a particular commodity or stock or currency at a particular future date at a particular price, called the strike or exercise price. The buyer of an option is not obliged to buy or sell at the exercise price; he will do so only if it suits him. The buyer may let the option lapse, in which case all that he loses is the premium, which is also called option money. An option to buy is called a call option. Whereas an option money. A call option is bought in the expectation of a rise in price, while one buys a put option expecting the price to fall. Options protect an investor from unfavourable fluctuations in price. Traded options can be bought and sold on the exchange, but traditional options cannot be resold. An option is not like a futures contract, which is binding, See AMERICAN OPTION.

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