Options Contract


DEFINITION of 'Options Contract'

A contract that allows the holder to buy or sell an underlying security at a given price, known as the strike price. The two most common types of options contracts are put and call options, which give the holder-buyer the right to sell or buy respectively, the underlying at the strike if the price of the underlying crosses the strike. Typically each options contract is written on 100 shares of the underlying.


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BREAKING DOWN 'Options Contract'

For example, a trader believes that the price of a stock will rise from its current price of $40 to a level nearing $100. Rather than purchasing the stock itself, she can purchase a call option for a fraction of the price at a strike anywhere between $40 and $100. If the stock does indeed rise to $100, and assuming the call option was bought at a strike of $75, the holder stands to gain $25 per share on the contract, minus any premiums paid for the option itself.

  1. Options Industry Council - OIC

    A cooperative formed in 1992 by U.S. options exchanges and Options ...
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    An options seller who owns the underlying security represented ...
  3. Forward Start Option

    The advance purchase of a put or call option with a strike price ...
  4. Call Over

    When the buyer of a call option exercises the option. In options ...
  5. Long-Term Equity Anticipation Securities ...

    Publicly traded options contracts with expiration dates that ...
  6. Call

    1. The period of time between the opening and closing of some ...
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  1. What is the difference between open interest and volume?

    In the options market, two measurements describe the liquidity and activity of option contracts. Volume is the amount of ... Read Full Answer >>
  2. If I believe Internet sector companies are overvalued, how can I profit from a fall ...

    If you believe Internet sector companies are overvalued, you can profit from a fall in their share prices by engaging in ... Read Full Answer >>
  3. What do all of the letters in a stock option ticker symbol mean?

    The option ticker explains four main things about the option: the underlying stock, whether it is a call or a put option, ... Read Full Answer >>
  4. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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