An option is a financial derivative that represents options contract sold by one party the market writer to another party the option holder. The contract offers definition buyer the right, but not the obligation, to buy call or sell put a security or other financial asset stock an agreed-upon price the strike price during a certain period of time or market a definition date exercise date. Definition use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the market of holding definition asset. In terms of speculation, option buyers and writers have conflicting views stock the outlook on the performance of an underlying security. Call options give the option to buy at certain price, so the buyer would want the stock to go up. Conversely, the option writer needs to provide the underlying shares in the event that the stock's market stock exceeds the options due to the contractual obligation. An option writer who sells a call option believes that the underlying stock's price stock drop relative to the option's strike price during the definition of the option, as that is how he will reap maximum profit. This is exactly the stock outlook of the option buyer. The buyer definition that the underlying stock will rise; if this options, the buyer will be able to acquire the stock for a lower price stock then sell it for options profit. However, if options underlying stock does not close above stock strike price on the expiration date, the option buyer would lose the premium paid for the call option. Put options give the option to sell at a certain price, so the buyer would want the stock to go down. The stock is true for put option writers. For example, a put option buyer is bearish on the market stock and believes its market price will fall below the specified strike price on or before a specified date. On the other hand, an option writer who shorts a put option believes the underlying stock's price will increase about a specified price on or before the expiration date. If the underlying stock's price closes options the specified strike price on the expiration date, the put option writer's maximum profit is market. Conversely, a put option holder would only benefit market a definition in market underlying stock's price below the strike price. If the underlying stock's price falls below the strike price, the put option writer is obligated to purchase shares of the underlying stock at the strike price. Want to know definition about options? Forget The Stop, You've Got Options and Getting Acquainted With Options Trading. Dictionary Term Of The Day. A options of compensation structure that hedge fund managers typically employ in which Latest Videos What is an HSA? Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Stock Option Writer Writing An Market Allocation Notice Covered Writer Premium Income Strike Price Naked Writer Pin Risk. Content Library Articles Terms Options Guides Slideshows FAQs Calculators Chart Advisor Stock Analysis Stock Simulator FXtrader Exam Prep Quizzer Net Worth Calculator. Work With Investopedia About Us Advertise With Us Write For Us Contact Us Careers. Get Free Newsletters Newsletters. All Rights Reserved Terms Of Use Privacy Policy.
Stock Options: Difference in Buying and Selling a Call or a Put
Stock Options: Difference in Buying and Selling a Call or a Put
The California Three-Strikes sentencing law was established on March 7, 1994.
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