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option
Sign in to saveAlso known as stock option, financial option, option contract, options contract
financial derivative conferring the right to to buy or sell a certain thing at a later date at an agreed price
An option is a financial contract that gives you the right—but not the obligation—to buy or sell something (like a stock) at a set price on or before a future date. Options matter because they let investors protect themselves against price changes, bet on future price movements, or lock in prices for purchases they plan to make later.
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In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option.
Options are typically acquired by purchase, as a form of compensation, or as part of a complex financial transaction. Thus, they are also a form of asset (or contingent liability) and have a valuation that may depend on a complex relationship between underlying asset price, time until expiration, market volatility, the risk-free rate of interest, and the strike price of the option.