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What are options

6 December 2019, 06:46
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An option is a financial derivative representing a contract wherein a buyer is given the right, but not the obligation, to buy or sell a financial instrument at an agreed upon price and on a specified date in the future. Popular markets for such contracts include Forex options trading, indices options trading and shares options trading.

OPTIONS TRADING TERMINOLOGY

Before attempting any options trading strategies, investors should ensure they are familiar with the terms involved in FX options trading and that of other assets including:

  • Option Holder: refers to the buyer of an options contract
  • Option Writer: refers to the seller of an options contract
  • Call: refers to the act of buying an option
  • Put: refers to the act of selling an option
  • Strike Price: refers to the agreed upon price of the asset to be bought or sold in an options contract
  • Exercise Date: refers to the specific date upon which an options contract comes into effect
  • Premium: the cost of buying or selling an options contract

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