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Options are contracts through which a
seller gives a buyer the right, but not the obligation, to buy or sell a specified number
of shares at a predetermined price within a set time period. There are two types of
options, Calls and Puts.
Options are derivatives which
means 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 or stocks in a
publicly listed company. Other underlying investments on which options can be based
include stock indexes, government securities, foreign currencies, or commodities like
agricultural or industrial products. Stock options contracts are for 100 shares of the
underlying stock - an exception would be when there are adjustments for stock splits or
mergers.
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.
An option contract is defined by the
following elements: type (Put or Call), underlying security, unit of trade (number of
shares), strike price, and expiration date.
Options
Symbology
Example
Call/Put
Symbol
Number of Shares
Strike Price
Exercise Date |
Call MSQKO $75
Nov. Call
MSQKO
1 contract (100 shares)
$75
Nov. |
All option contracts
that are of the same type and style and cover the same underlying security are referred to
as a class of options. All options of the same class that also have the same unit
of trade at the same strike price and expiration date are referred to as an option
series. |
This site discusses exchange-traded options issued by The
Options Clearing Corporation. No statement on this site is to be
construed as a recommendation to purchase or sell a security, or to
provide investment advice. Options involve risks and are not suitable
for all investors. Prior to buying or selling an option, a person must
receive a copy of Characteristics and Risks of Standardized Options.
Copies of this document are available from The American Stock Exchange,
86 Trinity Place, New York, NY 10006 or The Options Clearing
Corporation, 440 S. LaSalle Street, Suite 2400, Chicago, IL 60605.
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