Options
Wh at Are Options? Options are contracts that give the holder the right, not obligation, to buy or sell a stock (or any underlying financial instrument) at a pre-determined price (strike price) up to a pre-determined date (expiration date). In essence, the options contract purchaser may buy or sell the underlying stock at a reserved price up until the expiration date. House Purchase Example For a real-life example that illustrates the ultility of options contracts, imagine if you had your heart set on buying the next-door neighbor’s house before he goes to market. Your neighbor would prefer to avoid the costs of going to market and agrees to sell you the home for $300,000. With all the bulldozers and cranes in the area, the value is no doubt going to rise. Since you know the neighborhood well, the $300,000 is a good value. The problem is you don’t have enough money saved up to buy the house today October 15th. You are expecting your bonus on December 1st, just two and a half months awa...