Define: Option

An option is a legal contract that gives one party the right, but not the obligation, to buy or sell an asset at a predetermined price within a specified time period.

Options can be used for various assets, including stocks, bonds, commodities, real estate, and even intellectual property rights.

While both options and futures contracts are derivatives, an option provides the right to buy or sell an asset, whereas a futures contract obligates the parties to buy or sell the asset at a future date.

Yes, options can be traded on regulated exchanges, such as the Chicago Board Options Exchange (CBOE), where standardized contracts are bought and sold.

Options can be risky investments due to their leverage and potential for loss. It is important to understand the risks involved and seek professional advice before engaging in options trading.

Yes, options can be exercised before their expiration date, depending on the terms of the contract. However, early exercise may result in additional costs or limitations.

If an option expires without being exercised, it becomes worthless, and the holder loses the premium paid for the option.

Yes, options can be used as a hedging tool to protect against potential losses in an existing investment. By purchasing put options, investors can limit their downside risk.

Yes, options trading may have tax implications, including capital gains or losses. It is advisable to consult with a tax professional to understand the specific tax rules applicable to your situation.

Yes, options can be assigned or transferred to another party, subject to the terms and conditions of the option contract. However, certain options may have restrictions on assignment or transferability.