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What is an Option? Comments

  • By Jocelyn Black Hodes, DailyWorth's Resident Financial Advisor
  • June 21, 2013

Basically, an option is an advanced investing strategy to bet on the price movement of an underlying security. Technically, an option is a financial derivative that represents a contract sold by one party (option writer) to another party (option buyer). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

 

See Also:

Investing 101: Why, What, and How

The Skinny on Employee Stock Options

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