Options
Financial contracts giving the buyer the right, but not the obligation, to buy or sell an asset at a set price.
Definition
Options are financial derivatives that give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price (strike price) before or on a specific date (expiration). The buyer pays a premium for this right. Options are used for speculation, hedging, and income generation. Key concepts include intrinsic value (how much an option is "in the money"), time value (premium above intrinsic value), and the Greeks (delta, gamma, theta, vega) which measure sensitivity to various factors. Options strategies range from simple (covered calls, protective puts) to complex (iron condors, straddles). Options expire worthless about 60-80% of the time.
Related Terms
Leverage
Using borrowed capital to increase the potential return of an investment.
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A statistical measure of the dispersion of returns for a given security or market index.
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The process of identifying, assessing, and controlling threats to an investment portfolio.
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Selling borrowed securities with the expectation of buying them back at a lower price for profit.