Stock Option Markets and Contracts

Stock options give the holder the right, but not the obligation, to buy or sell the underlying security at a predetermined price within a fixed period of time. There are two different types of option contracts: put and call options. Exercising stock options is a simple process, you just need to contact your broker and inform them you want to exercise a given option in your portfolio.

The terms that relate to option contracts:

Call Options: This gives investors the right to buy the underlying stock at a specific price within a specific time period.

Put Options: This gives investors the right to sell the underlying stock at a fixed pre-determined price within a fixed period of time.

Strike Price (or exercise price): All options have a specific price at which a stock can be traded (bought or sold) if the option is exercised. As the holder of an equity call option, you can exercise your right to buy the shares of a particular underlying stock at the stated strike price. If you own a put option, you can exercise your right to sell the shares of a particular underlying stock at the stated strike price.

Expiration Date: This is the last day on which your option can be exercised.

In The Money: An option with positive intrinsic value is said to be in-the-money.

At The Money: An option whose strike price is equal to the present price of the underlying stock is said to be at-the-money.

Out Of The Money: An option is said to be out-of-the-money if the strike price is higher the market price of the underlying stock.

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