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OptionAn option takes the form of a contract that gives its holder the right but not the obligation to buy or sell a fixed number of shares (or other instrument) at a fixed price on or before a given date.A CALL option is an option to BUY shares. Call options generally rise in price if the underlying shares rise in price (and vice versa).A PUT option is an option to SELL shares. Put options generally rise in price if the underlying shares fall in price (and vice versa).Note that the holder has a right, not an obligation. This means that he can decide to exercise the option to buy or sell the shares if he wants, but he doesn't have to if he decides that it is not in his interests to do so. The main criterion for that decision is whether the exercise price of the option is higher or lower than the current price of the underlying share.Options can exist over a number of different classes of asset including property, chattels, and most types of financial assets. For most people, they relate to ordinary shares, and the options are called equity options. In London they are traded on LIFFE.Similar MatchesLapsed optionLapsed optionThe expiry of an option without being exercised by the holder. In the UK this is known as abandonment. Garman Kohlhagen option pricing modelGarman Kohlhagen option pricing modelA model widely used to price foreign currency options. Split fee optionSplit fee optionAn option on an option. The buyer generally executes the split fee with first an initial fee, with a window period at the end of which (upon payment of a second fee) the original terms of the option may be extended to a later predetermined final notification date. Conventional optionConventional optionAn option contract arranged off the trading floor and not traded regularly. Lockup optionLockup optionOften used in risk arbitrage. Privilege offered a white knight (friendly acquirer) by a target company to buy crown jewels or additional equity. The aim is to discourage a hostile takeover. See: Shark repellent. Further SuggestionsOption mutual fundOptions Clearing Corporation (OCC) European Options Exchange (EOE) MONEP (Marche des Options Negociables de Paris) Down and in option Lease With Option To Purchase option writer Asian option Option series equity options Incentive Stock Option (ISO) Conditional call options Option agreement Option price Currency option Call option option premium Put option Single option Equity options Exercising the option Irrational call option Currency put option Options Clearing Corporation Intrinsic value of an option |
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