The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given security at a specified price (the strike price) during a specified period of time. The security might be a stock, commodity, index, currency, or debt..
Options are often thrown into the too-hard basket by the uninitiated. However, with a little patience, you can nut out the basics pretty quickly. An option is a financial contract between two parties, the buyer and the seller. The buyer is referred to as the taker, owner or holder of the option, and the seller is called the writer. As a general rule, the buyer is at the less risky end of the option seesaw, since as a buyer your risk is limited to the initial premium you outlay to buy the option. Sellers, or writers, of options – while they don’t pay a premium to enter the contract – must reverse the transaction (either buying or selling) when the buyer decides to exercise their right.
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