| Stock
Option |
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A
privilege sold by one party to another that offers the buyer the right
to buy (call) or sell (put) a stock at an agreed-upon price during
a certain period of time or on a specific date.
American options can be
exercised anytime between the date of purchase and the expire date.
European options may only
be redeemed at the expire date.
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Buying
options are speculative and risky. For
example $1000 could be invested in 10 shares of Microsoft stock. But
to increase leverage $1000 could also be invested in 5 options contracts(as
an example) to expose one's risk to 500 shares. It all comes down
to risk vs. return. But if you lose on options you'll lose big, in
fact if the option doesn't exceed its strike price you will lose your
entire $1000. |
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Dictionary
