In the special language of options, contracts fall into two categories - Calls and Puts. A Call represents the right of the holder to buy stock. A Put represents the right of the holder to sell stock. A Call option is a contract that gives the buyer the right to buy shares of an underlying equity at a predetermined price the strike price for a preset period of time. The seller of a Call option is obligated to sell the underlying security if the Call buyer exercises his or her option to buy on or before the option expiration date.
A Put option is a contract that gives the buyer the right to sell shares of an underlying stock at a predetermined price for a preset time period. The seller of a Put option is obligated to buy the underlying security if the Put buyer exercises his or her option to sell on or before the option expiration date. At any given time, an option can be bought or sold with multiple expiration dates.
This is indicated by a date description. The expiration date is the last day an option exists. For listed stock options, this is traditionally the Saturday following the third Friday of the expiration month. Please note that this is the deadline by which brokerage firms must submit exercise notices. You should ask your firm to explain its exercise procedures including any deadline the firm may have for exercise instructions on the last trading day before expiration.
Certain options exist for and expire at the end of week, the end of a quarter or at other times. It is very important to understand when an option will expire, as the value of the option is directly related to its expiration. They can and often do simply opt to resell their options - or "trade out of their options positions". If they do choose to purchase or sell the underlying shares represented by their options, this is called exercising the option.
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This site discusses exchange-traded options issued by the Options Clearing Corporation. No statement on this site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. Options involve risks and are not suitable for all investors. Prior to buying or selling an option, a person must receive and review a copy of Characteristics and Risks of Standardized Options published by The Options Clearing Corporation.
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