Overview

An option a ntr t th t ll w (but doesn't require) n nv t r to bu r ll an und rl ng instrument like a ur t , ETF or v n nd x t a r d t rm n d r v r a rt n r d f t m . Bu ng nd selling t n r d n n th t n market, which trades contracts b d on securities. Bu ng n t n th t ll w u to buy shares t a l t r time called a ll t n, wh r bu ng an t n th t ll w u t ll shares at a l t r time is ll d a ut t n. H w v r, t n r not the m th ng stocks because th d not r r nt wn r h n a m n . And, lth ugh futur use ntr t ju t like options d , t n are considered a lower risk due to the f t that you n w thdr w ( r walk w fr m) an t n ntr t t n point. The price f th t n (it's r m um) is thus a percentage of the und rl ng asset r security. When buying r ll ng options, th nv t r or tr d r has th r ght to exercise th t option at any point up until the x r t n d t - simply bu ng or ll ng n option d n't m n u tu ll have t exercise it t th buy/sell nt. B u f this t m, t n are n d r d derivative ur t - wh h m n th r r is derived fr m something l ( n th , from th v lu of t l k th m rk t, ur t r th r und rl ng instruments). For th reason, t n r often considered l risky th n stocks ( f used rr tl ). Th r r tw d ff r nt kinds f t n - ll and ut t n - which g v th investor th r ght (but n t bl g t n) t sell or bu ur t . A call option a ntr t th t gives th nv t r the r ght to buy a certain m unt of h r (t ll 100 r ntr t) of a certain security r commodity t a f d price over a certain m unt f time. For x m l , a call t n w uld ll w a tr d r to buy a rt n m unt of shares f either stock, b nd , r even other instruments like ETF r nd x t a future t m (by the x r t n f th contract). C nv r l , a ut t n is a ntr t th t g v th nv t r th r ght t ll a rt n m unt f shares ( g n, t ll 100 r ntr t) f a rt n ur t r mm d t t a f d r over a certain m unt f t m . Ju t l k ll options, a put option ll w the tr d r th r ght (but n t bl g t n) to ll a ur t b the ntr t' x r t n d t .

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