How Does an Option Contract Work?

An overall description of option contracts is what gives a holder a right (but not obligations) to sell or buy a particular item at a set price before or on a specified date. Option contracts can be used for just about any type of class imaginable, here is information on the options that are used for specific baskets of stock  or STOCKS TO INVEST IN.

The option contract that provides their holder with the rights to purchase an index or specific stock are known as “call” options, while the options that provide their owner with rights to sell an index or specific stock are known as “put” options.

Whenever there are stocks involved, all the key U.S. exchanges agree on that every contract is a representation of the right in which to sell or buy exactly 100 shares of an underlying stock, this means trading of a partial contract is prohibited but you Can Get Another VXX Reverse Split.

Over and above identifying whether there is a right to sell or buy, each option contract will also list the specific prices known as the “strike price.” Which is the amount the holder of this option is allowed to sell an underlying security, which also includes the date when this contract will expire known as the “expiration date.”

On the main U.S. options exchanges, the strike prices associated with stocks are typically set in multiples of $5. Although certain stocks also have the options of the stock prices in multiples of $2.50. Over and above these standardized practices in strike prices, exchanges also agree uniformly that expiration of the regular “monthly” stock options falls on the 3rd Friday each month. Stock options will typically expire around a similar time every month, while the index options come with its set of unique rules. For this reason, you need to gain clarification from a broker before entering into index option trades.

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