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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 MatchesTraditional optionsTraditional optionsOptions on shares which, unlike traded options, are not transferable and must be exercised on specific dates. In order to make a profit, the owner of the options has to purchase them (assuming the option price is attractive on the relevant date) and then sell them on the market. In the money optionIn the money optionAn option that has value. Option cycleOption cycleThe cycle of option expiration months. The most common cycles are: January, April, July, and October (JAJO); February, May, August, and November (FMAN); and March, June, September, and December (MJSD). Stock optionStock optionAn option whose underlying asset is the common stock of a corporation. Indexed Stock OptionsIndexed Stock OptionsOptions that have an exercise price which may fluctuate above or below market value at performance options in that the exercise price of indexed options typically remains variable until the option is exercised. Further SuggestionsStock index optionIrrational call option Arbitrage free option pricing models FLEX Options Asian option Multi option financing facility Abandonment option option writer Covered option Single option Put an option Put option Doubling option Options on physicals Garman Kohlhagen option pricing model Postponement option Option premium Call option option premium plain vanilla option/warrant Qualifying stock option Bargain purchase price option Optional payment bond Liquid yield option note (LYON) lapsed option |
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