Option

Just as it sounds, an option gives its holder the right (but not the obligation) to conduct a transaction. Options typically exist to buy or sell a stock at a certain price. If an investor holds an option to buy a stock for less than its current price, or to sell a stock for more than its current price, then that option is said to be “in the money”. Options are derivatives – their value primarily comes from the value of the thing that the option is on (e.g. the price of the stock in question). However, things like the length of time that the option lasts for (e.g. one month, three months, or one year) and the probability of the “underlying investment” (in this case, the stock price) achieving the option price also have an impact on the option’s value. It’s important to remember that while option values are related to the value of the underlying investments, the options themselves have their own value.