What are Options?
Options are financial instruments that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specified time frame.
Types of Options
- Call Options
- Put Options
How Options Work
When an investor buys an option, they pay a premium to the seller. If the option is not exercised before the expiration date, it expires worthless.
Example
For instance, if a call option has a strike price of $50 and the stock price rises to $60, the holder can exercise the option to buy the stock at $50 and sell it at $60, making a profit.
Case Study: XYZ Company
XYZ Company offers its employees stock options as part of their compensation package. This serves as an incentive for employees to contribute to the success of the company and share in its growth.
Statistics
According to the Options Clearing Corporation, the total volume of options trading in 2020 reached 7.8 billion contracts, indicating a growing interest in options as a financial tool.
