An instrument
that gives the owner the right to buy or sell a specified number of shares of a specified
stock at a specified price within a specified period of time. A call option allows the
buyer to purchase the underlying stock at any time up to the expiration date of the
contract. A put option allows the buyer to sell the underlying stock at any time up to the
expiration date of the contract.
Source:
National Association of Securities Dealers, Inc.
Options are used by experienced
traders who are highly speculative or are trying to hedge there current position in a
stock. The use of call options, put options, and stock positions can be used to
protect against loss, generate income, or create a synthetic position in a stock.
