Option

How it is used

Traders buy or write (sell) options, exercise them or let them expire. Key words are strike price, expiry date and premium. The two basic types are call options and put options. American-style options can be exercised any time before expiry; European-style only at expiry.

Example sentences

1. The option expired worthless because the share price never reached the strike price.

2. Buying an option limits your loss to the premium you paid.

Common collocations

• buy an option
• exercise an option
• option premium
• strike price
• option expires

Related terms

• call optionAn option that gives the buyer the right to buy an asset at a fixed price, the strike price, until or on a set date. Its value usually rises when the asset's price rises.
• put optionAn option that gives the buyer the right to sell an asset at a fixed price, the strike price, until or on a set date. Its value usually rises when the asset's price falls.
• derivativeA financial contract whose value depends on the price of something else, such as a share, an index, a currency, an interest rate or a commodity.
• hedgeTo reduce the risk of losing money on an investment or business exposure by taking an opposite position, often with derivatives such as futures or options.
• futures contractA standard contract traded on an exchange that obliges the buyer and seller to trade an asset at a fixed price on a future date. Both sides must keep a margin deposit.