Derivatives
Option
Definition
What is Option?
A contract giving the holder a right, but not an obligation, to buy or sell an underlying assetThe asset, rate, index, or reference on which a derivative's value is based. under specified terms.
Example in practice
How This Looks in Practice
An investorA person or organisation that commits capital with the expectation of a financial return. buys an option to limit the downside on a share position.
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Related Terms
Derivatives
Derivative
A contract whose value depends on an underlying asset, rate, index, or event.
DerivativesUnderlying Asset
The asset, rate, index, or reference on which a derivative's value is based.
DerivativesNotional Amount
The reference amount used to calculate derivative payments, which may exceed the cash initially exchanged.
Derivatives StrategiesCovered Call
A strategy that owns the underlying asset and sells call options against it.