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Option

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Option
A financial Derivative that represents a contract sold by one party (Option Writer) to another party (Option Holder).

Options are financial instruments that convey the right, but not the obligation, to engage in a Future transaction, i.e., 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)   on some Underlying Security, or in a Futures Contract. In other words, the Holder does not have to Exercise this right, unlike a Forward or Future.
    
Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the Risk of holding an asset.
Posted by  Privatebanking.com
 
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