What Are Options? - enemyremains.com

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Share this article on email opens new window Options are essentially contracts between two parties that give holders the right to buy or sell an underlying asset at a certain price within a specific amount of time.

what options

An option's value is tied to the underlying asset, which could be stocks, bonds, currency, interest rates, market indices, exchange-traded funds ETFs or futures contracts. Options are securities themselves, like a stock or bond, and because they derive their value from something else, they're called derivatives.

There are two main types of options contracts: calls and puts.

Owning a call gives you the right to buy the underlying asset; owning a put gives you the right to sell that underlying asset. An easy way to keep them straight is to remember that a call would "call" an asset away, while a put would "put" it to someone else.

What is an Option? Put Option and Call Option Explained

How options work Options what options generally have an opinion on the future price of an asset, believing it will rise or fall. In the case of stocks, which we'll focus on here, you might choose a call option if you think a stock will rise, or a put option if you think it will fall.

Typically, options contracts are very short, such as 30, 60 or 90 days, but can have expiration dates of up to a year.

what options

An options trade always has two sides: a buyer and a seller. One options contract is generally based on shares of the underlying stock. The value of an option is based on the stock's current market price and volatility of the stock.

what options

An option's intrinsic value its in-the-money value and the length of time time value until expiry are also reflected in its overall value. Similar to stocks, options trade on exchanges. However, while stocks can give you part ownership of a company, options don't.

Options don't come with voting rights, nor do they pay dividends like many stocks do. Styles of options There are two styles of options contracts: American-style and European-style. American-style options are the most common and can be exercised anytime up to and including their expiration date.

What Is Options Trading? Examples and Strategies

European-style options can only be exercised on their expiry date. Benefits Options typically cost much less than the underlying asset, but still offer exposure to the price movements of that asset without owning it.

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Options are flexible and can support a variety of profit and risk-minimization strategies. It's a good idea to what options the risks before you get started to determine if what options are a good fit for you.

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What Are Options?

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What is an Option? Put and Call Option Explained

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what options

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