Option
An option is a financial instrument that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date. Options are typically used to hedge against risk, speculate on the price of an asset, or generate income. Options are traded on exchanges and over-the-counter (OTC) markets.
History of Options
Options have been around for centuries, with the earliest recorded use of options dating back to the ancient Greeks. The Greeks used options to speculate on the price of olive oil, and the concept of options spread to other parts of the world. In the 17th century, options were used to speculate on the price of tulip bulbs in Holland. In the 19th century, options were used to speculate on the price of stocks in the United States.
Options were first traded on an exchange in 1973 when the Chicago Board Options Exchange (CBOE) was founded. Since then, options have become an important part of the financial markets, with options being used to hedge against risk, speculate on the price of an asset, or generate income.
Comparison of Options
| Option Type | Risk | Reward |
|---|---|---|
| Call Option | Limited | Unlimited |
| Put Option | Limited | Unlimited |
Summary
Options are a financial instrument that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date. Options are typically used to hedge against risk, speculate on the price of an asset, or generate income. Options are traded on exchanges and over-the-counter (OTC) markets. For more information about options, you can visit the websites of the Chicago Board Options Exchange (CBOE) and the Options Industry Council (OIC).
See Also
- Call Option
- Put Option
- Option Premium
- Option Strike Price
- Option Expiration Date
- Option Moneyness
- Option Greeks
- Option Spread
- Option Straddle
- Option Strangle
