option

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In general: right to buy or sell property that is granted in exchange for an agreed upon sum. If the right is not exercised after a specified period, the option expires and the option buyer forfeits the money.
See also exercise.


Securities: securities transaction agreement tied to stocks, commodities, currencies, or stock indexes. Options are traded on many exchanges.


1. a call option gives its buyer the right to buy 100 shares of the underlying security at a fixed price before a specified date in the future—usually three, six, or nine months. For this right, the call option buyer pays the call option seller, called the writer, a fee called a premium, which is forfeited if the buyer does not exercise the option before the agreed-upon date. A call buyer therefore speculates that the price of the underlying shares will rise within the specified time period. For example, a call option on 100 shares of XYZ stock may grant its buyer the right to buy those shares at $100 apiece anytime in the next three months. To buy that option, the buyer may have to pay a premium of $2 a share, or $200. If at the time of the option contract XYZ is selling for $95 a share, the option buyer will profit if XYZ’s stock price rises. If XYZ shoots up to $120 a share in two months, for example, the option buyer can exercise his or her option to buy 100 shares of the stock at $100 and then sell the shares for $120 each, keeping the difference as profit (minus the $2 premium per share). On the other hand, if XYZ drops below $95 and stays there for three months, at the end of that time the call option will expire and the call buyer will receive no return on the $2 a share investment premium of $200.

2. the opposite of a call option is a put option, which gives its buyer the right to sell a specified number of shares of a stock at a parti cular price within a specified time period. Put buyers expect the price of the underlying stock to fall. Someone who thinks XYZ’s stock price will fall might buy a three-month XYZ put for 100 shares at $100 apiece and pay a premium of $2. If XYZ falls to $80 a share, the put buyer can then exercise his or her right to sell 100 XYZ shares at $100. The buyer will first purchase 100 shares at $80 each and then sell them to the put option seller (writer) at $100 each, thereby making a profit of $18 a share (the $20 a share profit minus the $2 a share cost of the option premium).
In practice, most call and put options are rarely exercised.
Instead, investors buy and sell options before expiration, trading on the rise and fall of premium prices. Because an option buyer must put up only a small amount of money (the premium) to control a large amount of stock, options trading provides a great deal of leverage and can prove immensely profitable. Options traders can write either covered options, in which they own the underlying security, or far riskier naked options, for which they do not own the underlying security.
Often, options traders lose many premiums on unsuccessful trades before they make a very profitable trade. More sophisticated traders combine various call and put options in spread and straddle positions.
Their profits or losses result from the narrowing or widening of spreads between option prices.
An incentive stock option is granted to corporate executives if the company achieves certain financial goals, such as a level of sales or profits. The executive is granted the option of buying company stock at a below-market price and selling the stock in the market for a profit.
See also call; covered option; deep in (out of) the money; exotic options; in the money; leaps; naked option; option writer; Out of the Money.

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The right to purchase or lease a property upon specified terms within a specified period.


Example: Moore purchases an option on a piece of land. The option runs 90 days and costs $500 per acre. If Moore wishes to purchase the land, she has 90 days to exercise her right and may buy the land for $500 per acre. If she decides not to purchase, she forfeits the $500 per acre.

Previous:	Opportunity Cost, Opinion of Title
Next:	Option Arm, Option to Purchase

noun

1. The act of choosing: choice, election, preference, selection. See choice.
2. The power or right of choosing: alternative, choice. See choice.

An agreement between an owner and prospective user of a property which, for a specified sum, grants the latter the right to buy or rent the property within a specified period of time.

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This entry contains information applicable to United States law only.

A privilege, for which a person has paid money, that grants that person the right to purchase or sell certain commodities or certain specified securities at any time within an agreed period for a fixed price.

A right, which operates as a continuing offer, given in exchange for consideration — something of value — to purchase or lease property at an agreed price and terms within a specified time.

An option is a type of contract that is used in the stock and commodity markets, in the leasing and sale of real estate, and in other areas where one party wants to acquire the legal right to buy something from or sell something to another party within a fixed period of time.

In the stock and commodity markets, options come in two primary forms, known as "calls" and "puts." A call gives the holder of the option the choice of buying or not buying stock or a commodities futures contract at a fixed price for a fixed period of time. A put gives the holder the option of selling or not selling stock or a commodities futures contract at a fixed price for a fixed period of time. Because an option only has value for a fixed period of time, its value decreases with the passage of time. Because of this feature, it is considered a "wasting" asset.

There are four parts to an option: the underlying security, the type of option (put or call), the strike price, and the expiration date. Take, for example, an "International Widget July 100 call." International Widget stock is the underlying security, July is the expiration month of the option, $100 is the strike price (sometimes referred to as the exercise price), and the option is a call, giving the holder of the call the right, not the obligation, to buy one hundred shares of International Widget at a price of $100. The holder of the call cannot buy the one hundred shares until the exercise date.

In the case of a commodity option, the right to purchase or sell pertains to an underlying physical commodity, such as a specific quantity of silver, or to a commodity futures contract. The period during which an option can be exercised is specified in the contract.

Stock option plans are used in business to reward employees. A stock option is a contract between the company and the employee giving the employee the right to purchase shares of company stock between certain dates at a price that is often fixed by the company or determinable by formula at the time the option is granted. For example, International Widget may issue an option to a key employee, which will allow the employee to purchase one hundred shares of stock at the fair market value at the grant date. The employee has five years in which to exercise that option. If the price increases above the grant-date fair market value, the employee will presumably exercise the option and realize an economic gain based on the spread between the fair market value at the grant date and the fair market value at the exercise date. If the price decreases after the option is granted, the employee will forgo exercising the option and thereby have no loss in economic value.

Options have a role in business outside the stock and commodity markets. In the law of contract, the option is a continuing offer to purchase or lease property. The offer is irrevocable for the stated period of time. Like most other contracts, the option contract is not terminated by the subsequent death or insanity of either party.

Options usually assume one of two forms. The seller can state to the purchaser, "If you pay me $500 today, I promise to sell Whiteacre to you for $50,000 on the condition that you pay the $50,000 within sixty days." If the purchaser pays the $500, a unilateral contract — an agreement in which there is a promise on only one side and a possibility of a performance by the other side — is created, and the offer is irrevocable. The seller of Whiteacre is obligated to perform if the purchaser pays the $50,000 within sixty days.

The second form of option contract is created when the seller states to the purchaser, "I offer to sell you Whiteacre for $50,000. This offer will remain open for sixty days if you pay $500 for this privilege." If the purchaser pays the $500, there is a collateral contract — an agreement made prior to, or simultaneous with, another agreement not to revoke the offer — and the seller is obligated not to revoke.

Acceptance of an option contract is operative when received by the offeror, rather than when sent. An option contract is interpreted strictly in favor of its creator and must be unequivocal and in accordance with the terms of the option. It is frequently said that "time is of the essence" in an option contract, but this means only that the option cannot be exercised after the offer has lapsed.

An offer can be accepted only by the person or persons for whom it is intended. Therefore, no assignment — a transfer to another of any property — of an offer can be made. The prohibition is based on the concept that everyone has the privilege of choosing with whom to contract. Once an offer has ripened into a contract, however, the rights thereby created are usually assignable. For example, if Jane offers an option to Jack to purchase Whiteacre, Jack cannot accept the option and then assign it to Joe. Once Jack and Jane enter into a contract for the sale of Whiteacre, Jack can assign his contract rights to Joe.

A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).


Call options give the option to buy at certain price, so the buyer would want the stock to go up.

Put options give the option to sell at a certain price, so the buyer would want the stock to go down.

Investopedia Says:
Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

In terms of speculation, option buyers and writers have conflicting views regarding the outlook on the performance of an underlying security.

For example, because the option writer will need to provide the underlying shares in the event that the stock's market price will exceed the strike, an option writer that sells a call option believes that the underlying stock's price will drop relative to the option's strike price during the life of the option, as that is how he or she will reap maximum profit.

This is exactly the opposite outlook of the option buyer. The buyer believes that the underlying stock will rise, because if this happens, the buyer will be able to acquire the stock for a lower price and then sell it for a profit.

Related Links:
An introduction to the world of options, covering everything from primary concepts to how options work and why you might use them. Options Basics Tutorial
Employee stock options are a form of equity compensation granted by companies to their employees and executives. Employee Stock Options (ESO)
Options can be an excellent addition to a portfolio. Find out how to get started. The Basics Of Buying Options
We'll show you how to use the average monthly trading range to score better returns. Make Better Options Trades
Flexible and cost efficient, options are more popular than ever. Find out why. The 4 Advantages Of Options
Interested in learning more about stock options? We go over some basic terminology and the source of profits. Getting Acquainted With Options Trading
A thorough understanding of risk is essential in options trading. So is knowing the factors that affect option price. Stock Options: What's Price Got To Do With It?
If you want to use leverage to your advantage, you must know how many contracts to buy. Reducing Risk With Options
The zero-cost cylinder allows traders to effectively trade the market while protecting their downside. Trading Options With The Zero-Cost Cylinder
This options strategy allows your profits to soar in a sideways market. Take Flight With An Iron Condor
Learn how to multiply returns and diversify risk by buying options instead of stock. Using Options Instead Of Equity
Margin loans, futures and ETF options can all mean better returns, but which should you pick? Leveraged Investment Showdown
We'll show you how to ace the largest and most difficult section of this exam. Tips For Series 7 Options Questions
This form of executive compensation can pose serious risks for investors. The Dangers Of Options Backdating

The live blinds choice of either checking or raising the minimum bet they have already placed. If the blind checks, the dealer will then take the appropriate action (depending on which game is being played). If the blind raises, then all other players will have to meet that bet in order to play that hand.

SoundPoker Says: For example, in most hold'em games there is a small blind and big blind. The big blind sets the minimum precedent for all other players to meet in order to see the flop. If all players after the big blind only call the amount of the big blind, the action then returns to first the small blind. If the small blind calls the amount of the big blind the action goes to the big blind. Once the action is at the big blind, the blind has the "option" of either checking or raising.

See Also: Act, Action, Big Blind, Blind, Check, Postition, Raise, Small Blind

IN BRIEF: A choice.

They finally ran out of options and had to take the bus home.

LearnThatWord.com is a free vocabulary and spelling program where you only pay for results!

For a list of words related to option, see:

• Publishing - option: right to develop published literary work for other media; publisher’s right of first refusal on author’s next work
• Securities - option: right to buy or sell security at fixed price within specified time
• Real Estate Practice - option: right but not obligation to purchase or lease property
• Movie People and Show Business - option: purchase by individual, company, or studio of exclusive right to develop film project during designated time
• Baseball - option: allows a team to send a player under contract to the minor leagues and recall him at a later date; at the end of a contract the team or the player can decide to accept or deny an opportunity to maintain the contract for another season;
• Football
• Judgments and Critiques - option: power or freedom to choose or make independent judgment

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See words rhyming with "option."

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)

Dansk (Danish)
n. - valgmulighed, udvej, option, forkøbsret, præmieforretning
v. tr. - vælge

idioms:

• have no option but to    kun én udvej

Nederlands (Dutch)
optie, keus, keuze(vak), keuzemogelijkheid

Français (French)
n. - (gén, Comput) option, possibilité, choix, (Comm, Fin) option, (GB, École, Univ) option, (Aut) option
v. tr. - (Sport) transférer sous conditions, avoir une option, garantir une option

idioms:

• have no option but to    n'avoir pas d'autre choix que de

Deutsch (German)
n. - Option, Wahl, Entscheidungsfreiheit, Möglichkeit
v. - die Wahl lassen

idioms:

• have no option but to    keine andere Wahl haben als

Ελληνική (Greek)
n. - εκλογή, προαίρεση, ευχέρεια, επιλογή, εναλλακτική δυνατότητα, (χρηματιστήριο) οψιόν
v. - παρέχω ή εξασφαλίζω δυνατότητα επιλογής

idioms:

• have no option but to    δεν έχω εναλλακτική δυνατότητα, δεν μπορώ να κάνω αλλιώς

Italiano (Italian)
opzione, scelta, diritto di opzione

idioms:

• a soft option    una strada facile
• have no option but to    non avere altra scelta che
• leave/keep one's options open    riservarsi la scelta

Português (Portuguese)
n. - opção (f)

idioms:

• a soft option    opção suave
• have no option but to    não há opção, exceto...
• leave/keep one's options open    deixar/manter as opções abertas

Русский (Russian)
выбор, опция, право выбора, заявка, предварительный заказ

idioms:

• a soft option    путь наименьшего сопротивления
• have no option but to    не иметь выбора, кроме
• leave/keep one's options open    оставить за собою право выбора

Español (Spanish)
n. - opción, elección, posibilidad, derecho de opción
v. tr. - adquirir o garantizar una opción, proveer de equipamiento opcional

idioms:

• have no option but to    no tener más remedio que

Svenska (Swedish)
n. - val, fritt val, valfrihet, alternativ, option
v. - ge valmöjlighet

中文（简体）(Chinese (Simplified))
选择权, 选项, 获得...的购买权或出售权, 对...提供选择供应的条件

idioms:

• have no option but to    除了...之外别无选择, 不得不, 被迫

中文（繁體）(Chinese (Traditional))
n. - 選擇權, 選項
v. tr. - 獲得...的購買權或出售權, 對...提供選擇供應的條件

idioms:

• have no option but to    除了...之外別無選擇, 不得不, 被迫

한국어 (Korean)
n. - 선택권, 선택 매매권
v. tr. - ~에 대한 선택권을 사다

idioms:

• have no option but to    ~하는 수밖에 없다

日本語 (Japanese)
n. - 選択, 選択権, 選択の自由, 選択可能なもの, 選択科目, 選択売買権, 選択できるもの, オプション

idioms:

• have no option but to    より他に手はない

العربيه (Arabic)
‏(الاسم) خيار, بديل (فعل) يعرض خيار‏

עברית (Hebrew)
n. - ‮ברירה, אפשרות, בחירה, אופציה, הזכות למכור או לקנות מניות מסוימות במחיר שצוין בזמן שנקבע‬
v. tr. - ‮ברירה, אפשרות, בחירה, אופציה‬

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