What are Stock Options?

A Stock Option is a contract that stipulates that one party (the holder or buyer) has the right (but not the obligation) to exercise the contract (the option) on or before a future date (the exercise date or expiration) and the other party (the writer or seller) has the obligation to honor the specified feature of the contract. Since the option gives the buyer a right and the seller an obligation, the buyer has received something of value. So the buyer pays the seller for the option the option premium.

DISCLAIMER: This is an educational site. The trades suggested on this site are examples to help the readers understand the principals of option trading. They are not intended as "tips" for actual trading and are suggested so that the reader can enter and follow hypothetical trades in the portfolio manager.

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