Option

Option

What is an option?

An option is a contract that gives the buyer the right to buy or sell a specified asset at a certain price before or on a certain date. That is, an option is a contract in which the subject of bargaining is not the asset itself, but the right of its primary sale or purchase. The obligation to fulfill the option lies on its seller which can be either the buyer (put option) or seller (call option) of the underlying asset.

Option expiration is a certain day before which the owner must make a decision on its execution.

Options can be used for:

  • Hedging

Hedging is similar to insurance. Just as we buy a policy on a car, options can be used to insure an investment against a downturn.

  • Speculation

These are bets on the movement of securities. The advantage of options is that they allow you to profit not only in a rising market. Thanks to their versatility, you can make money in a falling or even a standing market.

Types of options

  1. Call option gives the option holder the right to purchase an asset at a specific price over a specified period of time.
  2. Put option gives the purchaser of an option the right to sell an asset at a specific price within a specified period of time.
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2022-05-17 • Updated

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