Definition of option
The right, but not the obligation, to buy or sell specific amount of a given stock, index, at a specified price during a specified period of time.
The price of
the option depends on the price of the underlying, plus a risk premium.
Medium of
exchange for options contracts allowing
the holder the right to sell or buy an underlying commodity on
an open market. The option contracts define
the trading limitations of the market, including the option
type and the expiration date.
Options are derivatives, which mean
their value is derived from the value of an underlying investment. Most frequently
the underlying investment on which an option is based is the equity shares in a
publicly listed company. Options are traded on securities marketplaces among
institutional investors, individual investors, and professional traders and
trades can be for one contract or for many. Fractional contracts are not
traded.