What Is An Option?
What Is An Option?
In the realm of finance and investing, there are particular words, terms and concepts that are many times mis-understood by retail traders.
One such concept is the ‘stock option contract’.
What Exactly Is An Option?
While an option contract might seem a bit confusing at first, it’s actually much easier to understand than many make it out to be.
Let's begin with a very simple definition of an option contract:
An option contract gives the buyer of that option contract the ‘right’ - but not the obligation - to buy / sell the underlying asset at a particular price by a particular date off in the future.
An option contract is exactly that.
It is the ‘option’ for the investor who is controlling the option - to be either long - or short - the particular underlying asset at a specific price by a specific date in the future.
An option contract is based on an underlying contract or shares. In the case of stock, one option contract is equal to one hundred shares of stock.
With futures, one option contract is equal to one contract of the underlying future.
