An option contract (option) gives the buyer the option (meaning they could, but don't have to) to buy (call) or sell (put) financial merchandise at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Buying an option is similar to buying insurance because, in the event something affects the value, the buyer could still buy or sell the merchandise at an agreed-upon price.
Option contracts come in two flavors:
- Call options give the option to buy at certain price, so the buyer would want merchandise (stock, futures, other assets) to go up.
- Put options give the option to sell at a certain price, so the buyer would want the merchandise to go down.
Options are extremely versatile merchandise to deal in. They can be used in many different ways and combined in nearly infinite ways with option strategies. Some use options to speculate. Others use options as insurance to reduce the risk of holding asset merchandise.
Options Expiration (European Style),
Options Expiration (American Style),
High Frequency Trading,
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