Option

What is it? The right to buy or sell an investment instrument, usually a security, at a previously agreed price known as the strike price. The option buyer or seller pays a premium to lock in the price of the underlying investment without initially having to buy or sell the investment. The advantage of this type of investing is that you can leverage the small cost of the premium into a large profit (assuming your gamble is correct). For example, suppose that ABC stock is currently trading at $20, but you believe ABC is going to go up in a few months. You could purchase an option contract to buy 100 shares of ABC within 6 months at $25. You would pay a premium, say, of $250, for the right to trade the stock at $25 within the next 6 months.

Added By: John

Send To Friends!

If you'd like to send the Option definition to yourself or to your friends/colleagues, just enter the e-mail addresses in the boxes below -

We hope you now understand the meaning of Option. If you need any more information on this term, please don't hesitate to contact us.