Option (finance)
hideIn finance, an option is a contract between a buyer and a seller that gives the buyer the right—but not the obligation—to buy or to sell a particular asset (the underlying asset) at a later day at an agreed price. In return for granting the option, the seller collects a payment (the premium) from the buyer. A call option gives the buyer the right to buy the underlying asset; a put option gives the buyer of the option the right to sell the underlying asset. If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price. The buyer may choose not to exercise the right and let it expire. The underlying asset can be a piece of property, or shares of stock or some other security, such as, among others, a futures contract. For example, buying a call option provides the right to buy a specified quantity of a security at a set agreed amount, known as the 'strike price' at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote the option, must fulfill the terms of the contract.
The theoretical value of an option can be evaluated according to several models. These models, which are developed by quantitative analysts, attempt to predict how the value of the option will change in response to changing conditions. Hence, the risks associated with granting, owning, or trading options may be quantified and managed with a greater degree of precision, perhaps, than with some other investments. Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Over-the-counter options are traded between private parties, often well-capitalized institutions that have negotiated separate trading and clearing arrangements with each other. Another important class of options, particularly in the U.S., are employee stock options, which are awarded by a company to their employees as a form of incentive compensation. Other types of options exist in many financial contracts, for example real estate options are often used to assemble large parcels of land, and prepayment options are usually included in mortgage loans. However, many of the valuation and risk management principles apply across all financial options.
For more information about Option (finance), read the full article at
Wikipedia.
This text uses material from Wikipedia and is available under the GNU Free Documentation License.
News tagged with stock options
New theory on fairness in economics targets CEO pay
Nov 03, 2009 |
4.3 / 5 (12) |
3
(PhysOrg.com) -- Chief executives in 35 of the top Fortune 500 companies were overpaid by about 129 times their "ideal salaries" in 2008, according to a new type of theoretical analysis proposed by a Purdue University researcher ...
Search results for stock options
Scientists trace shark fins to their geographic origin for first time using DNA tools
8 hours ago |
4 / 5 (1) |
0
Millions of shark fins are sold at market each year to satisfy the demand for shark fin soup, a Chinese delicacy, but it has been impossible to pinpoint which sharks from which regions are most threatened ...
Study Examines Racial 'Blind Spots' in Chicago Area Communities
Other Sciences / Social Sciences
20 hours ago |
3 / 5 (2) |
2
(PhysOrg.com) -- Racial residential segregation in the Chicago area may be perpetuated by a lack of knowledge of communities across racial lines, according to a new study led by a University of Illinois at Chicago researcher.
CPR is successful without mouth-to-mouth, but not without oxygen
20 hours ago |
3 / 5 (1) |
0
People can survive cardiac arrest if they receive only chest compressions during attempts to revive them - as advised by the current American Heart Association guidelines. But they cannot survive without access to oxygen ...
Improving Cardiac Rehab for Women with Heart Disease
21 hours ago |
not rated yet |
0
(PhysOrg.com) -- USF Health researcher shows motivational "women-only" cardiac rehab improves symptoms of depression.
2009: the Year of Twitter
23 hours ago |
1 / 5 (1) |
0
The year has not yet ended but Microsoft says "Twitter" was among the top searches of 2009 on its new search engine Bing and a company which monitors language has crowned it the top word of the year.
Pickin' Up Good Vibrations to Produce Green Electricity
Nov 30, 2009 |
4 / 5 (10) |
2
(PhysOrg.com) -- Vibrations from the environments we live and work in could be much more widely harnessed as a clean source of electricity, due to cutting-edge UK research.
Coverage of inexpensive drugs may increase length and quality of life after heart attack
Nov 30, 2009 |
not rated yet |
0
Providing free medications to people after heart attack could add years to patients' lives at a relatively low cost for provincial governments, according to a new study by researchers at St. Michael's Hospital in Toronto.
Scientists demonstrate multibeam, multi-functional lasers
Nov 30, 2009 |
5 / 5 (5) |
0
An international team of applied scientists from Harvard, Hamamatsu Photonics, and ETH Zürich have demonstrated compact, multibeam, and multi-wavelength lasers emitting in the invisible part of the light spectrum ...
Don't bet newspapers will get rich shunning Google
Nov 30, 2009 |
4 / 5 (2) |
5
(AP) -- There's an intriguing idea floating around the media: Microsoft Corp. wants to undercut Google so badly in Internet search that it might pay newspapers to withhold their content from Google. Just don't count on that ...
Patients say 'no thanks' to risky medical treatments
Nov 30, 2009 |
not rated yet |
0
A recent study suggests that increasing patient responsibility for making medical decisions may decrease their willingness to accept risky treatment options. Details of this proof-of-concept study appear in the December issue ...
List of search results for stock options
