Derivatives
Option
Definition
What is Option?
A contract giving the holder a right, but not an obligation, to buy or sell an underlying asset under specified terms.
Example in practice
How This Looks in Practice
An investor buys an option to limit the downside on a share position.
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Related Terms
Derivatives
Derivative
A contract whose value depends on an underlying asset, rate, index, or event.
DerivativesUnderlying Asset
The asset, rate, index, or reference on which a derivative's value is based.
DerivativesNotional Amount
The reference amount used to calculate derivative payments, which may exceed the cash initially exchanged.
Derivatives StrategiesCovered Call
A strategy that owns the underlying asset and sells call options against it.