Quick Definition

An option is a financial derivative that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a certain date.

Examples

• 1A trader buys a call option on a stock to capitalize on the anticipated rise in the stock's price without purchasing the stock directly.
• 2An investor purchases a put option to hedge against potential declines in the stock market, protecting their portfolio.
• 3A company uses options to manage currency risk exposure in international transactions.
• 4Real estate developers use options to secure potential property purchases while they assess project viability.

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